Weekly Commentary 7/22/11

By Lawrence G. McMillan

Thursday's breakout upside move in the stock market has solidified the indicators together into a bullish posture. The chart of $SPX held onto a bullish picture even though the selling in the past two weeks was heavy at times. The 20-day moving average has been rising all along, and the index never closed meaningfully below that average

Equity-only put-call ratios have remained bullish, as they have continued to decline from their high peaks of a month ago.

The breadth oscillators had moved to sell signals last week, but never really got deeply oversold. Now, with the rally that has taken place in the last few days, those sell signals have been canceled out.

The volatility indices ($VIX and $VXO) have been trading in a narrow range for much of this year, but $VIX has still managed to generate useful signals. A spike peak buy signal was created when $VIX traded up to 22 on Monday and then fell back sharply the rest of the week.

In summary, the bears had their chance and -- even though they seemed to have news media in their corner, spewing out scary stories right and left -- they failed. The bulls now have control, and we would expect to see $SPX trade to new yearly highs soon. That would make a pattern of higher highs and higher lows on the $SPX chart, which will be bullish indeed.

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