Weekly Stock Market Commentary 7/3/14

By Lawrence G. McMillan

$SPX is once again making new all-time highs. $SPX now has support at or near the 1950 area, which was the low of the most recent "correction." Below that there is support at 1925, where $SPX bottomed last week. The major support is at 1900, where a lot of work was done between March and May.

The equity-only put-call ratios remain split. The standard ratio continues to decline and thus remains on a buy signal. You can see from the chart in Figure 2 that it's at the lowest levels of the chart. That means it's in overbought territory. The weighted ratio, however, curled up and is on a sell signal.

Market breadth has been very strong of late, and so both breadth indicators that we follow are on buy signals. They are overbought, of course, but then that's a normal occurrence when new highs are being made by $SPX.

Volatility indices ($VXST, $VIX, $VXV) remain at very subdued levels. $VIX can remain at low levels for long periods of time, while all that time $SPX continues to rally. In fact, rather than using low $VIX as a reason for shorting into a strong uptrend, one might better be reminded of the old saw "Never short a dull market." The time for shorting will come when $SPX breaks down and $VIX breaks out to the upside, not when $VIX is wallowing around at low levels.

In summary, the intermediate-term trend remains bullish, as all but one indicator are on buy signals. The overbought conditions might produce a sharp, but short-lived market correction at any time.

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