This is an abridged version of our Daily Report.
Stocks are rallying
Even though the S&P 500 is nearly 10% below its high, its Cumulative Advance/Decline Line has rebounded so much it’s almost at a new high.
That’s a positive divergence, but historically there hasn’t been much positive about it, with several false signals. Every time it triggered, the S&P showed a negative return one or two weeks later, which isn’t a big deal for most investors. But it generated terrible false signals during 2001 and 2002, as well as (so far) last December.
Late last year, options traders closed out a historic number of puts relative to calls, which is usually a good sign of excessive pessimism. It has since rebounded strongly. In the GLD gold fund, put open interest has been rising so much that it’s nearing a four-year high.
A bad reaction to earnings is sending Intel down more than 5% after hours. It’s the largest weight in the SMH fund which is showing a 10-day Optimism Index above 60, which is high. Seems like a bad combination, but there was one other time this happened, when optimism on SMH was high then Intel gapped down more than 5% after earnings, which was January 18, 2013. After that one, SMH fell modestly for the next four days then quickly regained its losses. There were 5 times Intel gapped down 2% the next day...
The post titled Most Stocks Are Rallying; Put Open Interest Is Rising was originally published as on SentimenTrader.com on 2019-01-25.
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