McMillan Market Commentary

Friday, July 23, 2004

Note: Please use the following link to view this week's charts:
http://www.optionstrategist.com/products/advisories/hotline/charts.asp
To receive the complete commentary plus reccomendations visit here: http://www.optionstrategist.com/offers/strategist.htm

Stock Market
Bulls are very complacent, and we view that as a major bearish
argument. Not only does $VIX remain low, but in the media, most
analysts talk of dullness or of a trading range, when in reality this
market is accelerating to the downside. They cite bullish news and
positive earnings reports, completely ignoring the fact that the market
has sold off on those supposedly positive items. That sort of market
reaction is typical of a bear market, and thus we feel it will be
necessary for the market to see 'capitulation' in the form of massive
oversold readings before this market will be a 'buy' again.

In addition, our technical indicators remain on sell signals. The
major indices have all broken below support and below their longer-
term (200-day) moving averages something that usually triggers
institutional selling (and it has done so once again). We are nearing
the yearly lows (Figure 1), but this time we don't have the negative
sentiment readings that we did back in May when a nice rally sprang
forth from this support area. Unless investor sentiment turns quickly
negative, we think the support will not hold this time.

Equity-only put-call ratios remain on sell signals (Figures 2 & 3).
The standard ratio (leftmost chart) has made a new high and thus is
considered oversold. However, the weighted ratio is far less oversold.
Both are still rising and thus are on 'sells.'
Market breadth has taken on a negative tone as well, and thus
this indicator is a sell signal as well.

Finally, the volatility indices ($VIX and $VXO) remain
stubbornly low. No one is panicking. The last two times that the
market fell to these levels this year, $VIX spiked up above 20.
Currently, $VIX is still below 17, even though $SPX and $OEX are
near their yearly lows. We feel that a move above 17 by $VIX will
trigger another sell signal, perhaps signaling a waterfall wave of
selling in the market before buy signals can be generated.

This market is extremely dangerous, and this is a dangerous time
of the year (August through October). Do not fall asleep! Take
bearish action or at least protect your longs. When the technical
indicators turn bullish, only then will it be time to buy.

To receive the complete commentary plus reccomendations visit here: http://www.optionstrategist.com/offers/strategist.htm