$SPX remains in a strong uptrend. However, it has reached overbought levels, in that it is "too far" above its 200-day moving average. The first support level is 1670, and if that is violated, traders should turn cautious.
The equity-only put-call ratios remain on buy signals, despite "wiggles" at the end of some charts.
When one says that “the market” is overbought, he really means that a number of trusted indicators are in extreme states of bullishness. Recognizing that “the market” is overbought is only moderately useful. That’s because an overbought market can still rise strongly, while remaining overbought. Things work similarly, but in reverse, for oversold markets.
Now that the Standard & Poors 500 Index ($SPX) has made new intraday and closing highs, joining the other major indices (except NASDAQ), there is once again no overhead resistance. However, increasingly overbought conditions may combine to slow the rally at least temporarily. $SPX has support just above 1670 (last week's lows), then again at 1650 (the June highs), and then at 1625 or so, where it traded for a time early this month.
The "interpreters" are in charge of this market. They are the people who interpret what they think Bernanke said, and then they act accordingly in the stock market. Frankly, I am in the camp that Bernanke has not changed his message at all -- he has consistently said that QE will remain in force until economic conditions improve (and there is no improvement -- at least in the indicators he is watching).
What happened yesterday is relatively unimportant. It’s what’s happening tonight that is the big story. Yesterday, the market temporized while waiting for the FOMC minutes, and then it didn’t do much after the minutes were released, either. However, Bernanke spoke after the close, and the market is interpreting his comments as indicative of the fact that QE is just fine, and tapering won’t occur anytime soon.
On Monday, stocks rallied early, and held onto the gains throughout the remainder of the day. Overnight, S&P futures were up another 6 points in Globex trading. In other words, the upside momentum is strong and the bears seem to have disappeared. Support is at 1615.
Ever since the broad market bounced just over a week ago from the 1560 level, the bulls have been trying to gain complete control. So far, they have been stymied. $SPX has not broken out over resistance, nor has $VIX broken its uptrend. However, one other important indicator has turned bullish -- the put-call ratio.
$SPX has topped out in the 1620-1630 range for several days. A close above 1630 would be positive.
Today is a half-day, holiday-shortened session, and Friday will likely be a very low-volume affair. However, that doesn’t mean that prices can’t be volatile. In the bear market of 2002, the bulls engineered a 300-point Dow rally out of nowhere on July 5th, only to see the bears wipe it out completely in a few days after that. But if you have positions, these big moves can be meaningful.
The speed with which $SPX fell -- 63 points in two days -- meant that it sliced right through support areas without stopping. There is support at 1560 -- this week's low on $SPX. Furthermore, there is important support below there, at 1540, from a series of lows back in March and April.
Equity-only put-call ratios have not given confirmed buy signals yet. They remain on sell signals.
