Weekly Stock Market Commentary 9/19/14

By Lawrence G. McMillan

Early this week, $SPX closed at a new relative low, and many of the indicators appeared to be turning bearish (for example, $VIX closed above 14).  However, prices have rallied since then, and $SPX made a marginal new all-time high today -- both intraday and closing.  Is this probe upwards more effective than the probe downwards was a few days ago?  It's hard to say, but a further close at new highs would solidify an upside breakout.

Equity-only put-call ratios have turned negative.  The standard ratio (Figure 2) has clearly begun to rise, and that is definitely a sell signal.  However, the weighted ratio's sell signal is questionable.

Market breadth have reversed direction, and are on buy signals now.

Volatility indices ($VXST, $VIX, $VXV, and $VXMT) probed above 14 a few times, even as recently as Wednesday. Since then, volatility indices have retreated and thus are in neutral-to-bullish territory.

In summary, another close Friday at a new high would constitute a bullish upside breakout, despite the fact that there are sell signals from the put-call ratios.  Should that bullish breakout fail to materialize, we would remain neutral unless $SPX broke down below 1980.

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