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Weekly Commentary 7/8/2011

By Lawrence G. McMillan

The stock market continued its bullish explosion this week. $SPX broke through its previous down trend line last Friday, and has now overcome the late-May high.  All that remains is a test of the post-2009 highs at 1370.

Equity-only put-call ratios turned bullish when they peaked and began to fall.  These are intermediate-term buy signals.

Market breadth has been very strong during the rally.  Breadth indicators remain on buy signals, but are now very overbought.

Volatility indices ($VIX and $VXO) are perhaps the most potentially problematic indicators, since $VIX has dipped back below 16 again.

In summary, the intermediate term outlook is bullish as all indicators are on buy signals.  There are overbought conditions in $VIX and breadth, and they might generate some short-lived corrections, but the general trend is higher.

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