As the biggest selloff of the year seems to have quieted down, traders are wondering what’s next. Most agree that the market will keep rising from the ashes, but there are some things you should watch out for in the coming week, from put:call ratios to technical patterns on the indexes.
We’ve rounded up our InvestorPlace advisors to give you their read of the market.
John Lansing, Parabolic Options, Trending123 and Power Trading at the Open
Did you know that the put:call ratio last week jumped up to 1.39? That was the second highest level we’ve seen in years, meaning that the panic we’ve had is remarkable. It seems almost unreasonable considering we were only about 7% from the highs.
Now I don’t have any problem with shorting or with the market tanking. But more stocks are showing up as buys than I’ve seen in a long time — over 500 stocks in my tracking system. That’s the most that I’ve seen since the bottom in 2009, and it’s trumping any bear case that I could put forward.
Ken Trester, Maximum Options
Stocks rallied for a third straight day Thursday. But the action remains volatile, and rising volatility many times has signaled an impending change in the prevailing trend.
Our index indicators are giving bullish to neutral readings, an upgrade over last week’s neutral to bullish, as the Dow and Nasdaq have risen back above their 50-day moving averages. But the S&P 500 has yet to definitively cross above its 50-day average, which accounts for the neutral reading. For the bullish readings to continue, the Dow must stay above 14,960, and the Nasdaq above 3390. The S&P 500 needs to move above 1615 to join the bullish crowd.
Jon Markman, Trader’s Advantage and CounterPoint Options
Recent support for equities was largely attributed to dampened angst over the tapering of the Federal Reserve’s quantitative-easing program.
Central bankers were in the headlines again Thursday, with William Dudley, the dean of Fed governors due to his leadership of the New York branch, as the latest Fed official to address the distinction between tapering (winding down the program’s bond purchases over time) and tightening (lifting interest rates).
A couple of other Fed officials highlighted the extent to which the central bank’s tapering outlook has become dependent on how the data comes in. As a result, economic reports from here on out are going to get even more scrutiny than usual, and the ones that appear to be the best will paradoxically knock back stocks.
My research suggests that a short-term top might have been put in on Thursday in the S&P 500 and the Russell 2000 with a temporary exhaustion of buying power. It’s possible that a more durable top was set, but we’ll just have to see how it goes.
John Jagerson and Wade Hansen, Slingshot Trader
After the FOMC meeting, we saw quite a negative reaction to the possibility of tapering back QE at some point in the future. But we did manage to close above the 1600 level again this week—a psychologically important level that shows we did find some support. That shows that the bulls were at least willing enough to come into the market and buy off this bounce.
Now, there are a couple things to watch at this level. The S&P has basically been trading in a downtrending channel. The question is whether the market can break above this downtrending resistance level. So we’re not out of the woods yet, but there is a nice support level about 1575 and resistance around 1600.
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