HOTS Options Commentary
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HOTS Weekly Options Commentary (Issue #39)
To all HOTS Subscribers:
As I mentioned numerous times over the last couple of months, the primary reason for market strength has been seasonality. Buying based on performance anxiety associated with year-end bonuses is a primary driver of rallies occurring in November and December. Markets go up and down on perception of the future, and when the most perceptible image for portfolio managers is that of a bonus, the strength usually ends with that bonus. Guess what? We are entering bonus time. Therefore, portfolio managers need to find a better justification in order to buy stocks.
Justification is not such an easy task given: 1) market internals have been deteriorating for weeks; 2) there is no true leadership; and 3) as I suspected, NASDAQ and small cap stocks are already lagging badly. The short-term picture remains mixed (once again due to seasonality), and churning back and forth into the end of the year would not surprise me at all. I expect any advance (if it occurs) to be narrow and led by the DOW because it is the most narrow of the major indexes. We are in a classical case of the last leg of a bull market where most stocks have already entered a bear market, while major indexes are desperately holding. It looks almost identical to December of 1999 in that respect.
On the following chart NYSE Composite with the number of NYSE stocks trading above their 200-day moving average (courtesy of decisionpoint.com), note that every new high in the index is accompanied by a diminishing number of stocks participating. Longer-term bulls need to convince me that this is healthy. In my book, this is as bad as I have ever witnessed.
NYSE Composite with number of stocks above 200-day MA:
Dennis Leontyev
HOTS Strategist and Editor,
HamzeiAnalytics
To all HOTS Subscribers:
As I mentioned numerous times over the last couple of months, the primary reason for market strength has been seasonality. Buying based on performance anxiety associated with year-end bonuses is a primary driver of rallies occurring in November and December. Markets go up and down on perception of the future, and when the most perceptible image for portfolio managers is that of a bonus, the strength usually ends with that bonus. Guess what? We are entering bonus time. Therefore, portfolio managers need to find a better justification in order to buy stocks.
Justification is not such an easy task given: 1) market internals have been deteriorating for weeks; 2) there is no true leadership; and 3) as I suspected, NASDAQ and small cap stocks are already lagging badly. The short-term picture remains mixed (once again due to seasonality), and churning back and forth into the end of the year would not surprise me at all. I expect any advance (if it occurs) to be narrow and led by the DOW because it is the most narrow of the major indexes. We are in a classical case of the last leg of a bull market where most stocks have already entered a bear market, while major indexes are desperately holding. It looks almost identical to December of 1999 in that respect.
On the following chart NYSE Composite with the number of NYSE stocks trading above their 200-day moving average (courtesy of decisionpoint.com), note that every new high in the index is accompanied by a diminishing number of stocks participating. Longer-term bulls need to convince me that this is healthy. In my book, this is as bad as I have ever witnessed.
NYSE Composite with number of stocks above 200-day MA:
Dennis Leontyev
HOTS Strategist and Editor,
HamzeiAnalytics
Hamzei_Analytics
Active member
- Messages
- 166
- Likes
- 1
HOTS Weekly Options Commentary (Issue #41)
To all HOTS Subscribers:
What a difference a week makes! All the longer-term market concerns, which I wrote about over the last two months, are finally beginning to become real and show up in market action. We got whipsawed by trying to concentrate on short-term moves. The problem is that it is extremely difficult to time the market, which is in a process of making an important top. Chances that the market has made an intermediate-term top (or as many call it a 4-year top) have dramatically increased. I have discussed longer-term bearish technical indicators in the past and there is no need to repeat them, but the fundamental picture, which was fuzzy last year, had turned drastically south. A combination of bearish technicals and a fundamental uncertainty makes a compelling case that the market is ready for a significant correction over the next three months or longer.
Disappointing earnings reports, inverted yield curve, rising oil prices, new FED chairman, and worsening geopolitical situation are too much for this market to handle at these levels. I am not going to concentrate on a short-term picture too much at this point. Friday’s sell off could mean a very short-term bottom or it could be a so-called initiation selling. Whether the market tries to rally to retest the highs or proceeds to go lower immediately is irrelevant from a big picture stand-point. A brake of 1275 last week on S&P 500 was a huge bearish development. Short-term support is at 1250 (+ or – a few points). A break of this level will probably cause a waterfall type of decline. Our analysis shows that this is a matter of when, not if this support will be broken.
S&P 500 daily:
Dennis Leontyev
Options Strategist & Editor,
HOTS
To all HOTS Subscribers:
What a difference a week makes! All the longer-term market concerns, which I wrote about over the last two months, are finally beginning to become real and show up in market action. We got whipsawed by trying to concentrate on short-term moves. The problem is that it is extremely difficult to time the market, which is in a process of making an important top. Chances that the market has made an intermediate-term top (or as many call it a 4-year top) have dramatically increased. I have discussed longer-term bearish technical indicators in the past and there is no need to repeat them, but the fundamental picture, which was fuzzy last year, had turned drastically south. A combination of bearish technicals and a fundamental uncertainty makes a compelling case that the market is ready for a significant correction over the next three months or longer.
Disappointing earnings reports, inverted yield curve, rising oil prices, new FED chairman, and worsening geopolitical situation are too much for this market to handle at these levels. I am not going to concentrate on a short-term picture too much at this point. Friday’s sell off could mean a very short-term bottom or it could be a so-called initiation selling. Whether the market tries to rally to retest the highs or proceeds to go lower immediately is irrelevant from a big picture stand-point. A brake of 1275 last week on S&P 500 was a huge bearish development. Short-term support is at 1250 (+ or – a few points). A break of this level will probably cause a waterfall type of decline. Our analysis shows that this is a matter of when, not if this support will be broken.
S&P 500 daily:
Dennis Leontyev
Options Strategist & Editor,
HOTS
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