The market continues to be bullish

By Lawrence G. McMillan

The market is taking a small breather today after yesterday’s strong bullish move.  There doesn’t seem to be anything that would indicate this is more than a normal pause.  There is now viable support in the 1385-1390 range for $SPX, which was last week’s low.  Furthermore, the 20-day moving average is rising rapidly and is near that level as well.

Today, breadth is about equal between advances and declines.  Yesterday – although not a 90% up day – showed strong breadth, and both breadth oscillators are back on buy signals.  Equity-only put-call ratios moved lower, which is bullish, but they still don’t have a clear-cut trend, so we are continuing to call them neutral.

Perhaps the most interesting area of this market is volatility - particularly as shown by $VIX and $VXO and their accompanying derivatives.  Before discussing $VIX, though, I would like to point out that the average stock's Composite Implied Volatility (CIV) is in the 8th percentile.  This is "too low" and is thus an overbought condition.  Eventually it will generate a sell signal when it rises above the 15th percentile, but that can sometimes take a while.

$VIX is higher today, having climbed back above 15.  The near-term $VIX futures are see plenty of buying, especially in the front end, where April futures are up more than $VIX.  The term structure is flattening more today, too, because of that.  But lest you think the term structure has really flattened, just note that the futures expiring in September and later continue to have premiums in excess of 10 points to $VIX.  Even the June futures are trading with nearly a 6-point premium.  So the term structure still bullish.

In summary, the market continues to be bullish.  Overbought corrections are worked off quickly and with minimal damage.  

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