A short-term buy signal for the S&P 500 (SPX) was triggered at Friday’s close: The “oscillator differential” buy signal. This occurs when the two breadth oscillators, which had spread far apart in recent weeks, come back within 200 points of each other, highlights Lawrence McMillan, editor at Option Strategist.
Historically, this has been a reliable short-term, one-week buy signal. For those unfamiliar with this indicator, it’s based on the divergence and convergence of two key market breadth oscillators—the NYSE-based oscillator and the “stocks only” oscillator. These signals have provided strong short-term trading opportunities in the past.
Still, in the longer term, equity-only put-call ratios have been racing upwards, with put buying very heavy last week. Both remained on sell signals for the stock market since they are rising. The weighted ratio reached the heights of last summer. But it is not the level of the ratio that is important...it's the direction and that is still upward. These put-call ratios won't generate buy signals until they roll over and begin to trend lower.
In summary, we have only one buy signal confirmed, but we expect to see more in the next few days. The ensuing rally is likely to carry upwards to about 5,900 and then run into more trouble. We have been rolling deeply in-the-money puts down and will continue to do so where appropriate.
