Weekly Stock Market Commentary 7/1/16

By Lawrence G. McMillan

Stocks had a violent downside reaction to the Brexit vote in Britain. But while the damage was severe, it was short-lived. Over the past four days, a huge rally has emerged that has nearly wiped out the Brexit losses.

$SPX is now back inside the 2040-2120 trading range that had been containing the markets through April, May, and the first half of June. So, the $SPX chart is in a neutral state once again.

While many other indicators have turned more bullish, that is not the case for the equity-only put-call ratios. They gave sell signals right after the Brexit vote, and they have remained on those sell signals.

Both breadth oscillators are back on buy signals now, and they are moving into more deeply overbought territory.

Now we come to the Volatility Indices. They have generated several buy signals this week. Moreover, $VIX has closed below 17. That puts it back inside the 13-17 range that had contained $VIX since March. As long as $VIX is below 17, it is not trending higher -- meaning that stocks can rise while $VIX is in that state.

In summary, the last few days have reversed a number of indicators back into the bullish, or at least neutral, column. The bears have lost control, and it would take a close of the gap on the $SPX chart at 2036 in order for the bears to regain control. Meanwhile, we have a number of buy signals that have triggered, and these have worthy track records. So we are short-term bullish for now, and if the put-call ratios can roll over to buy signals, then a more intermediate-term bullish stance would be warranted.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.