Weekly Commentary 6/8/2012

By Lawrence G. McMillan

After some relatively heavy, but orderly, selling in the past few weeks, oversold conditions finally reached levels that spawned a sharp oversold rally.   But oversold rallies, while often unexpectedly strong, are generally short-lived affairs.  There is certainly a good chance that this is the case again this time.

$SPX was able to rally to its declining 20-day moving average. There is further resistance at 1340.      

Equity-only put-call ratios appear to be on the cusp of a buy signal (FIgures 2 and 3), but if they make new highs that will reaffirm sell signals.

Market breadth indicators have turned bullish.

Despite the decline in $VIX, which was short-term bullish, as long as $VIX is above 21, stocks are going to have trouble advanceing.

In summary, we would say that a close above 1340 should be an "all-clear" buy signal for the broad stock market, if the intermediate-term indicators have turned bullish by that time.  But as long as $SPX is below 1340, the bears are in charge. 

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