Weekly Commentary 8/17/2012

By Lawrence G. McMillan

This market is becoming the ultimate in defying bearish opinion. Since June 1st, $SPX has advanced almost exactly 150 points and is nearly back to the yearly highs -- and therefore at a post-2008 high. Yet, bearish opinion is still rather rampant.   

$SPX remains within the rising trading channel that extends back to early June (see Figure 1).  It is near the top of the channel, so in that sense, it is "overbought."

Equity-only put-call ratios continue to remain on buy signals.

Market breadth indicators remain on buy signals as well, and they are into overbought territory.

Volatility indices ($VIX and $VXO) are trading at extremely low levels.  While the lower trend in $VIX is bullish for stocks, the fact that $VIX is below 15 means it is overbought as well.

In summary, the market is still bullish for the intermediate-term. The overbought conditions that exist now will likely lead to a sharp, but short-lived pullback soon.  That pullback will likely be a buying opportunity. 

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