By Lawrence G. McMillan
After a strong upside breakout last week from the triangle formation (blue lines in Figure 1), the market has spent this week in a tight range. There has been an improvement in the indicators in general, but the most important indicator -- the price chart of $SPX -- has not really responded.
A clear breakdown and close below 2090 would be a short- term negative, likely calling for a retest of support at 2060. A breakout over 2115 and then 2135 would be very bullish.
Equity-only put-call ratios are now both solidly on buy signals, as the weighted ratio rolled over this week, joining the standard ratio, which had already been on a buy signal.
Market breadth has been strong this week. As a result, both breadth oscillators are on buy signals, and both are in overbought territory. This is a "good" overbought, as it is positive that breadth expands when $SPX breaks out to the upside.
Volatility indicators continue to be bullish for stocks. This sector has remained steadfastly bullish since the mid-February lows, even though other indicators have generated sell signals at times. The only worry would be if $VIX were to develop an uptrend. It would have to close above 17 in order to do so.
In summary, the indicators are in place for a rally that would take out the all-time highs. All that is lacking is confirmation from price action in $SPX itself. That could be a big challenge. But since so many appear to be short, it appears that a challenge of those all-time highs is eventually going to take place.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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