Stocks sold off sharply this week -- the first decline of any note since early last December. This one may have some sticking power, though, as rally attempts failed all week, and then when support was broken on Friday morning, a rout was on.
The superlatives that are being used to describe this market are well-deserved. $SPX has advanced so fast that there really isn't any support, unless you want to declare the low of the "half-day" correction at 2825 a minor support area. The one clearly defined support area is the 2680-2700 area that was formed in late December and from which this January rally was launched.
Stocks continue to advance at a rapid rate. Despite one half day of correction (down 40 points from high to low on Tuesday), $SPX has closed at new all-time highs on three of the last five days. There is now minor support at 2770 -- the low of the half-day correction that took place.
The chart of $SPX could not be more bullish. It is in a strong uptrend, well above all of its meaningful trailing moving averages, and continually making new all-time highs. Other indices are in similar shape, as far as making new all-time highs, but $SPX has the strongest chart of them all, going back to the election in November 2016. That's when this monster rally was launched, and it's still in full force.
The market blasted into the new year with a strong rally that has dominated the first three days of trading. The strength of this move is evident in the fact that on both January 3rd and 4th, $SPX gapped to new all-time highs. We have mentioned several times in the past how impressive this market has been with upside gaps to new highs over the past year. Thus, the $SPX chart remains bullish.
The stock market euphorically gapped to new all-time highs on Monday, after the Tax Bill had been passed over the weekend. Pessimists might say that a gap to a new all-time high, on "the news," is a selling opportunity. They might be right, but it's really to soon to tell. One would have to see $SPX break some support areas before that could be confirmed. The bottom line is that the intermediate- term trend of $SPX is still up.
...Both the equity only and standard put-call ratios plunged to historic lows on Monday as the market gapped to new all-time hights and held on to the gains.
Put buying was heavy enough on Tuesday and Wednesday that a small upward “curl” appeared on both of the equity-only put-call charts and the Total put-call ratio chart. This by itself is not meaningful, but if these ratios begin to trend higher, that would represent confirmed sell signals for the stock market...
The most important technical indicator -- the chart of the S&P 500 Index ($SPX) -- remains steadfastly bullish. It has continued to rise, establishing a myriad of support levels while doing so. Since August 28th, there has only been one day that this Index has even closed below its rising 20-day moving average. That is a strong uptrend.
We have been repeatedly noting that the equity-only put-call ratio charts are at multi-year lows. The charts on the right show visual evidence of this.
These are very long-term put-call ratio charts, extending back 25 years in the case of the standard ratio (upper chart) and 20 years in the case of the weighted ratio (lower chart).
Despite some selling early in the week (that seemed to be more of a reaction to a short-term overbought condition than to any real change of trend) $SPX still remains well above its rising 20-day moving average. It has closed above that MA every day except one since August 28th! As I've said before, that is impressive. So the trend of the $SPX chart is bullish, and that is the best intermediate-term indicator that we have.
