Friday wound up one of the strongest weeks in stock market history. It was a perfect storm of events, topped off by a pre-holiday, thin trading session on the first day of the month. There are now some fairly extreme overbought conditions in the breadth oscillators. However, as we’ve explained before, these are actually bullish conditions for the new upside breakout. Of course, in the very short term, the market needs to slow down a bit and regroup.
The move in $SPX on Friday clearly broke through the downtrend that had been in force since early May. While there is still resistance at those May highs (1370), this market should be able to overcome that and activate targets north of 1400 in the next few months. Equity-only put-call ratios are on buy signals, and since those are coming from high points on their charts, they indicate that there is quite a bit of room for those buy signals to operate before one need worry about “too much” call activity taking place.
$VIX was only off fractionally on Friday, but it did close below 16. So that is another overbought condition...
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