Weekly Commentary 12/21/12 - $SPX $VIX

By Lawrence G. McMillan

I guess politicians don't understand that the end of the year is supposed to be a time of holiday celebration and little market movement. Amazingly, this sharp decline today may not actually change the technical picture much -- unless the decline gets worse.

$SPX closed Thursday at 1443.60, with the 20-day moving average at 1420.  The 1420 level is also a support level, extending back to October.

Meanwhile, the equity-only put-call charts continue to remain strongly on buy signals.

Market breadth has been quite strong on recent days.  Even on Wednesday, when the broad stock market declined, breadth was about flat.  Both breadth indicators remain on buy signals.

Volatility indices ($VIX and $VXO) have been perhaps the closest thing to a bearish indicator of late. $VIX rose sharply over the past couple of days, in fear (apparently, correctly) of problems emanating out of Washington, D.C.  A $VIX close above 19 would be an outright bearish signal.  That might be  possible today.

In summary, the bulls will be put to the test today, but there is good reason to suspect that they might pass that test.  The indicators are still bullish, and one down day probably isn't going to change that. We will maintain our bullish outlook as long as $SPX continues to close above 1420.

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