Sentiment and technical status of the stock market following volatile opex week: it's not over yet

Here's a quick recap of how my favorite sentiment and technical strength indicators look following a volatile opex week! Starting with the volatility index ($VIX), it looks like it's once again testing trendline and Bollinger Band (especially on the weekly) support on both my daily and weekly charts. The weekly chart in particular is interesting, because it shows that VIX has made a higher low within a "triangular" set of trendlines even though the stock market has been testing relatively new highs. That's typically a bearish signal. It doesn't mean that the market is about to crash horribly, but it is a warning that the correction we've seen since last week's crest may not be over yet. Next after that, you'll see my daily and weekly charts of the equity-only put-call ratio ($CPCE). After plumbing the low from which the stock market dropped and the CPCE rose, it's snapped back to somewhat normal levels including a fairly stable moving average level on the weekly chart - this one's less telling than the VIX about next moves, but it can support the notion that the CPCE needs to rise higher (with the stock market moving lower) before it's giving a buy signal.

Check out the McClellan Oscillator chart for the NYSE ($NYMO) - and I also include the Summation Index ($NYSI) in a lower window of that chart. You can see that the Oscillator bounced up from a trendline, coincident with the bounce from the intraday low on Wednesday, and snapped back toward potential resistance in the area of the zero line and trendline re-testing. When you look at the chart, you'll see that the McClellan Oscillator was showing negative divergence for a long time going into the top last week. The next really good buy will display positive divergence. More concerning is the fact that the Summation Index has dropped below its moving average as I've marked (with a red circle) in the lower indicator window. The Summation Index is a longer-term indicator and so this suggests that the correction may have longer to go.

Then at the bottom, there's the TRIN. It's quite interesting that its 10-day moving average is still above 1.2 which means it's technically oversold, but the other moving averages are under that level and so its the TRIN value itself. This is after the TRIN had snapped up from the very overbought conditions of some days ago. Notice that the big "sell" last week was from a higher low in the TRIN - I find this rather common, and it also suggests that a more significant "buy" signal may well come when the TRIN is at a lower high.

All in all, it looks to me as if the market has made a very nice bounce from a very oversold condition, but the volatility is probably not over yet. It's also true that I keep in mind Terry Laundry's T Theory(tm), among other indications, which suggests that the crest last week was potentially very significant with a correction that should last longer than one week. His charts at his T Theory (tm) website (always in the list at right) have been suggesting for quite a while now that a low of some sort should occur later in November or even in December. This overall thinking definitely affects my point of view. So - sure, the market could surprise me to the upside ... but these sentiment and technical charts are indicating to me that the correction actually should not be over yet.

PS - after posting this, I browsed over the COTs Timer blogspot (also in the list at right) and I see that Alex Roslin has posted this today: Selloff May Not be Over. Hey, I didn't coordinate the title of my blog post with him - but clearly he's got the same idea, based on looking at the latest commitments of traders (COT) data! Which of course I think is pretty neat so I'm posting this reference to his blog post.

PPS - for those who like charts, as well as the cycles on Bradley siderograph model - take a look back at my post entitled Stock market possibly cresting before October 25 Bradley model "turn date" window from October. Sure, the topping crest didn't happen then - it actually occurred around the time frame of the more important Bradley turn window Nov. 15-16, also marked by a time series high-low-low-high that I placed on a chart of the $SPX in that post. Again, not a guarantee that the correction must last longer, but adding to the technical evidence that the crest we saw last week going into this turn window may take a longer time period to correct.