Weekly Commentary 1/4/13

By Lawrence G. McMillan

Thanks to a jittery market and some hijinks from our elected representatives in Washington, DC, the stock market had one of its biggest whipsaws this week.  These machinations have created some changes in the technical indicators, but in general, they are back to bullish signals for the most part.

The $SPX chart remains bullish, thanks to the fact that $SPX itself never closed below 1400. Hence, the $SPX chart never broke down.

Equity-only put-call ratios have now rolled back over to buy signals.

With the huge turnaround rally this week, breadth exploded to the positive side, and breadth sell signals were canceled out.

Volatility indices ($VIX and $VXO) had the biggest whipsaw of all.  That action left a huge spike peak reversal on the chart, which is bullish for stocks.

In summary, the massive whipsaw that took place was sort of a manufactured one in that apparently many large traders were just sitting on their cash, waiting for fiscal cliff negotiations to produce any kind of a deal.  Questions remain as to whether they have spent all their ammunition in one large buying spree, or whether the rally can continue.  It seems to me that the overbought conditions that were so suddenly created need to be worked off before higher prices can be attained.

Sign up for The Option Strategist Weekly Updater to receive this market commentary delivered to your inbox each Friday for free.