Several volatility indexes (including VXGOG, VIX, OVX, VXN, VXEEM, and GVZ) rose more than 35% last month www.cboe.com/volatility
The S&P 500 Index (TR) declined by 6% in May. The BXM and PUT Indexes took in premium that helped cushion their downside moves in May. www.cboe.com/benchmarks
* Please note that indexes are not directly investable. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options, http://www.cboe.com/Resources/Intro.asp which is available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606. The information in these slides is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Past performance is not a guarantee of future returns.
Weekly Commentary by Lawrence G. McMillan
mkearney
The market just cannot get a rally together that is strong enough to erase the oversold conditions. There is now resitance at 1335, where the rally failed this week.
Equity-only put-call ratios continue to plow higher on their charts. They remain on sell signals.
Market breadth has been quite negative, and that is one of the major oversold conditions.
Volatility indices ($VIX and $VXO) have remained stubbornly high. As long as $VIX is above 21, that is bearish for stocks.
In summary, the oversold conditions persist and should still be able to generate a sizeable rally. But as long as intermediate-term indicators remain negative, any such rallies will be short-lived.
Larry McMillan
optionstrategist.com
Is it Groundhog Day Again? by Bob Lang
weyker
If any of you remember the movie Groundhog Day starring Bill Murray it is where reporter Phil Connors (Murray) continues to replay the same day over and over again, living the exact same sequence of events on Feb 2.
Everyday is the same routine, at 6am the same song comes on, same people, same weather, same city, same conditions. I bring this up because as we embark on a new week it is loaded with 'stuff' that can move markets heavily. Just like a month ago, just like the previous month, and the previous year.
Many of the same worries in April and May come back to give us chills in June, and while we thought Greece was 'solved' it is still on the front burner - like in 2011 and in 2010. Will it ever end? Will we ever move on past our own Groundhog Day experience?
So, on to the coming week. After the Memorial Day Holiday is finished there is some heavy economic data. This is 'jobs week' with ADP and weekly jobless claims on tap for today (not great) and then the NFP comes out tomorrow.
It appears the estimate is quite high once again (165-175K was consensus, now moving towards ~150k) and is far more optimistic than last month. As you may recall the last two jobs numbers put the markets down on the mat. Will the third time be the charm?
I have not been hearing much out there to inspire some big hiring in the private sector. Meanwhile government jobs have been contracting at a consistent pace. More caution is being thrown into the wind.
The market sentiment is rather sour this time around (along with being down 8% or so since early April) so even if there is some disappointment it may already be priced in.
What I'll be looking at are the secondary data which includes Chicago PMI, pending home sales(weak), ISM, construction spending along with auto/truck sales.
These will give us a nice clue as to how this current quarter is coming along. I cannot see the Q2 GDP coming in much better that Q1 - where we'll also see a second estimate (it came in right on consensus at + 1.9%). It is also the end of the month (today, Thursday) and the market tape will likely be painted just prior.
Volatility has become quite elevated but may just be getting ready to run here. With everything to worry about from the economy, Greece, the rest of Europe, China slowing down and our debt problems it is no wonder the easy bet is to reach for protection.
As you see from the chart the trend higher in VIX (market volatility) is persistent and strong. Puts are getting more expensive, the insurance is going up as the probability of lower prices climbs. Playing the trend here can be a profitable one if you are nimble, quick and NOT too greedy. Move your feet and take yours!
I would love to hear your comments on this article - I would be happy to respond in kind!
Bob Lang
Senior Market Strategist
explosiveoptions.net
Can Low P/E Ratios Stop the Market's Bleeding? - Weekly Market Outlook by Price Headley
mkearney
Hey, it may not have been wildly bullish last week, but even the smallest of gains - in spite of clear prompt - at least means the bleeding was stopped. The question is, will it stay stopped? It's too soon to say we're out of the woods yet, but the bulls have set themselves up for a very good shot at reigniting the bigger bullish trend.
And as you're about to see, there are many potential reasons why in this week's multitude of economic numbers.
Economic Calendar
Perhaps a lack of economic news last week was just what the doctor ordered... nothing bad to bomb the market after a painful three-week stretch of alarming economic data. Whatever works.
That said, we did get a couple of nuggets last week on the real estate front. Existing home sales sold at an annual pace of 4.62 million in April, while new home sales rolled in at a pace of 343K. Neither was dramatically strong, but both were better than March's numbers, and both were near inline with expectations.
On the flipside, durable orders growth was tepid, and negative if you don't count automobiles. April's orders only grew by 0.2%, and actually fell 0.6% when removing transportation from the equation. The ex-transportation number fell well short of the expected 1.0% improvement.
Economic Calendar
Clearly there's too much in the lineup this week to preview all of it; we'll just have to hit the highlights.
Tuesday: Will the Conference Board's consumer confidence levels mirror the improving ones from the Michigan Sentiment Index (which just hit the highest level since October of 2007)? If so, it would speak volumes in favor of the bull market.
Thursday: We'll get an omen of the official government jobs-growth number (on Friday) with the ADP employment change figure. The expected increase of 145K is better than last month's disappointing 119K new payrolls, but it's still not great.
Friday: Buckle up, 'cause it's gonna be a big day. We'll get that official jobs-growth number; the pros are looking for 172K new private ones. The unemployment rare should roll in at 8.1% again. We'll also hear last month's auto sales, though we're not looking for anything dramatic in either direction.
Stock Markets
Good news - the S&P 500 Index (SPX) (SPY) fought its way back above the 200-day moving average line (green) last week. It was a 'just barely' situation, but the deed was done all the same. Even when the bears pushed back on Friday, the bulls used the 200-day line as a floor. All told, the SPX gained 1.7% last week following a three-week rout. Take a look.
S&P 500 - Daily
The question is, can the market build on last week's bullish effort, or was it just a dead-cat bounce that's bound to reverse this week?
There's still no clear answer, but the odds favor at least a little more near-term upside. The CBOE Volatility Index (VIX) (VXX) still has plenty of room to move lower... before it hits a wall. And, with the high-to-low span for the S&P 500's entire dip being about 8.5%, the selloff has sufficiently brought about a capitulatory mindset. T hat'll do for now, assuming nothing out of Europe fires any more surprise torpedoes at us.
Even so, the bigger question remains - will the bigger bullish trend (QQQ) (DIA) (IWM) resume with a little more bullish traction, or is it just a short-term reprieve before we ultimately move to lower lows (say in July or August)?
At this point, it could go either way. The lower 20-week Bollinger band (orange) is waiting to act as a floor at 1287, and the 40-week (200-day) average line is also right there. Neither of those potential floors did the weekly chart of the S&P 500 (below) any good last August, but more often than not, those band lines to contain the index, and reverse trends when brushed.
S&P 500 & VIX - Weekly
Bottom line? From a technical perspective, we see more upside than downside, though there's a fair amount of both out there right now. Traders aren't quite sure what to do here, and that's going to keep things muted in either direction for a while.
So that was the technical perspective. What about the fundamental reality (especially now that earnings season is over)? In simplest terms, trailing and projected earnings still support the bigger bull market, even if they can't stave off a short-term rough patch like the one we just went through.
As it stands right now (through the end of Q1), the S&P 500 is trading at a P/E of 13.44. That's not as cheap as it was when the P/E hit 11.95 in September of last year, but the current reading is pretty much rock-bottom compared the last 22 years.
S&P 500, with Earnings & P/E Ratio
What's going on? Why are people so averse to owning stocks when they're pretty much as cheap as we've seen them in a couple of decades?
In simplest terms, fear has hijacked the market. Traders are fearful that the projections are unattainable targets.
It's understandable, considering how nobody saw the 2008 crisis reaching the magnitude it did, and few saw the 2001 meltdown coming. Having been burned too many times, investors are understandably skeptical now.
The whole thing brings up a philosophical idea though - bear markets aren't likely to start when they're widely expected. Yes, it's a contrarian notion, but contrarianism tends to work regardless of the timeframe in question. If this were really a recession or a bear market (or both) around the corner, the masses would either be ignoring it, or denying it. There's actually quite a bit of agreement on the matter now, giving stocks a wall of worry to climb.
Point being, we actually remain long-term bulls no matter what the market is ready to do in the near-term.
Trade Well,
Price Headley
BigTrends.com
