Equity-Only Put-Call Ratio Makes a New Low

By Lawrence G. McMillan

Yesterday's market was one of the quietest days so far. $SPX had a total range of 5.34 points for the entire day.  That is minuscule.  In recent months, this sort of action has only been a precursor to further upside movement – and it wouldn't be surprising to see it happen again.  Of course, there are still overbought conditions, but we would expect any correction to be short-lived and probably contained by support at $SPX 1430-1440.

The weighted equity-only put-call ratio has now made a new low, thus canceling the recent sell signal.  It is, however, overbought since it is at levels last seen in March and April before the eventual 10% correction that ensued.  The standard ratio made a new low as well.

Market breadth was negative, and the breadth oscillators pulled back some as a result.  However, both oscillators remain on buy signals, and in modestly overbought territory.

Volatility indices ($VIX and $VXO) dropped as "worried" traders seemed to ease back on the insurance purchases, at least for one day.  The downtrend in $VIX continues to be bullish for stocks, although a $VIX near 14 has to be considered "overbought."

The Sept $VIX futures expire in an "a.m." settlement this morning, so the Oct futures are now front month.  Except for the two front months, futures fell less than $VIX, and the term structure steepened.  This continues to be a bullish construct for stocks.

In summary, we remain bullish.  An overbought correction should be contained, if one occurs.

This market commentary was taken from this morning's edition of McMillan's Daily Volume Alerts.  To sign up for a free trial, click here.