By Lawrence G. McMillan
On Monday, September 11th (a date we will never forget), $SPX broke out to new all-time highs. There hasn't been a lot of follow-through after that, but those highs have been retained.
The importance of these new highs is that they distinctly turn the charts positive. The $SPX chart now has support at 2480 (the old highs), as well as at 2460 and every 20 points down, all the way to 2400.
This most recent upside breakout has generated a lot of call buying in the past week. As a result, all of the put-call ratios are dropping sharply, which is bullish. Both equity-only put-call ratios are on strong buy signals now (Figures 2 & 3).
Both breadth oscillators remain on buy signals as well. It is mandatory that they get overbought when the broad market is breaking out to new highs (especially then, but also when any new bullish leg in the market is beginning).
This brings us to volatility, which is always an interesting story. $VIX itself remains low (below 13 is "low" in our way of thinking), and that is bullish for stocks. Stocks can rise without a problem until $VIX begins to trend higher.
In summary, we have intermediate-term buy signals from all indicators. Thus our targets of 2540 to 2576, depending on which of our methods you are using, remain intact. A short-term overbought correction is possible, but even if it occurs, it should only be a minor deterrent.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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