Friday the Equity Put/Call ratio (CPCE) closed at .53. CPCE readings .55 and less predict a lower market 88% of the time in the next five days with an average .8% Loss. A pull back of .8% in the current market is near the gap level formed on July 12 near the 243 level on the SPY. Covered SPX short for gain of 1.2%.
The VIX closed higher as the SPY closed higher over the last three days suggesting a pull back in SPY is coming. The VIX trades opposite of the SPY and in general the VIX leads the way for the SPY. Friday's volume on the SPY was relative high and most high volume days are tested and a possible scenario that may develop in the next day or two. The most likely downside target is the open gap that formed on July 12 near the 243 ( 2430 on the SPX). The scenario goes along with the Equity Put/Call ratio of .53 reviewed on page one. If the 7/12 gap is tested and tested on lighter volume will most likely find support and rally. Expect the up and down in the market to continue through July and possible into August. We will watch the potential test Friday's high for a sell signal setup.
The middle window is the GDX/GLD ratio. Its common for the GDX/GLD ratio to lead the way for GDX. Over the last week GDX/GLD ratio has been underperforming GDX and suggests a pull back is coming for GDX. The GDX/GLD ratio also underperformed GDX at the early June high and predicted a pull back (which GDX did). Bigger picture is turning bullish but the short term picture suggests a pull back is possible for GDX. The Commitment of traders report (COT) for gold has been showing bullish signs for two weeks. The report for June 26 showed the Commercials at 150K short (bearish); for July 7, 107K Short (on bullish side of neutral) and last report of July 14 came in at 73K short, which is bullish. The commercials (smart money) think a bottom is close at hand for Gold. We are staying neutral for now.
