This premium report allows limited free access. The report is for week of February 3, 2020, and includes analysis of major market indexes, large caps, sector ETFs, a chart of the week and our forecast. Access to article requires Premium Articles subscription.
- Weekly summary and recap
- S&P 500 weekly analysis
- Major index overbought/oversold conditions in daily and weekly timeframes
- S&P 100 overbought/oversold stocks in daily and weekly timeframes
- Low volatility versus high beta large caps analysis
- Sector performance
- Chart of the week
1. Weekly summary
- Stocks fell for second week in a row amid virus fears.
- Sell-off in high beta large caps and small caps accelerated.
- Bond rally caused partial yield curve inversion.
Recap (January 27, 2020 – January 31, 2020)
|10-Year Note||-16 bps||-0.40%|
2. S&P 500 weekly analysis
The S&P 500 fell 2.1% on the week as uncertainty about a spreading virus grew.
Last week we wrote:
PAL OB/OS indicator fell towards the longer-term average and its 40-week moving average. This pattern is usually followed by continuation of the price move. Longer-term support in case of panic selling could be around 3027.
The index is now 6.2% away from longer-term support at 3027. Volatility has not increased significantly despite a fall of about 3% from all-time highs. The 3-week ATR is at 2% (of the closing price) with the longer-term average at 3%. A test of the longer-term support around 3027 would probably cause the 3-week ATR to rise above the October 2019 highs around 3.2%.
On the other hand, a drop of about 3.1% in 9 days is far from unusual, as shown in the chart below.
The S&P 500 index has fallen more than 3% in 9 days with a frequency of 10.5%. In 2018 there were multiple 9-day returns lower than – 3%. This means that this market is resilient despite the negative developments. Market participants are also more sophisticated with quantitative traders and passive investors determining price action and profiting from speculator losses. Short traders are frequently squeezed out and put option strategies have not been effective unless the timing is impeccable.
It has never been tougher for the shorts to make money. It is interesting but call options have higher chances than puts in generating profit during a large correction or even bear market. One explanation for that is that the direction of the trend is obvious to anyone with access to free charting and therefore there is no advantage in trading it with options due to theta decay (loss of premium.)
3. Major index overbought/oversold conditions in daily and weekly timeframes
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Specific disclaimer: This report includes charts that may reference price target levels determined by technical and/or quantitative analysis. No updates to charts will be provided if market condition changes occur that affect the levels on the charts and/or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting program: Amibroker
Data provider: Norgate Data
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