The broad market started off the new month of September in extremely bullish fashion. It seems that traders were waiting for the turn of the calendar to do some massive allocation shift out of bonds and into stocks.
This recent action proves, once again, that a large trading range environment continues to dominate The larger $SPX trading range is 1020 (July lows) to 1130 (June and August highs).
Equity-only put-call ratios remain on sell signals; they did not react much to the strong market of the past two days.
Market breadth on the other hand is the most bullish indicator of the lot.
Volatility indices ($VIX and $VXO) remain in a trading range, with $VIX bounded by 22 and 28.
In summary, recent bullish action does not constitute a change of direction by itself. We would be more impressed if $VIX were to break down below 22 and equity-only put-call ratios were to roll over to buy signals. In the meantime, it seems that the only reliable thing is that the market reacts to strong moves in either direction with counter-moves within a short period of time.
Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, recognized as essential resources for any serious option trader's library.
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