By Lawrence G. McMillan
$SPX continued its phenomenal post-Christmas rally (which to date has registered over 400 points of gains), but has still not broken through resistance at 2820. Unless that happens, the next peak on the chart will still be a lower high, and the $SPX chart will still have a negative tilt to it.
Equity-only put-call ratios remain solidly on buy signals. The weighted ratio has fallen faster than the standard ratio, and it is already down to the lower third of its chart. Regardless, these ratios will remain on buy signals until they roll over and begin to rise.
Market breadth continues to be strong. The oscillators remain strongly on buy signals and remain deeply in overbought territory. The fact that they're overbought is a positive thing, as long as it continues.
Volatility has drifted lower, and that is mildly bullish for stocks. $VIX has been closing between 15 and 16 for more than a week now, so it is not a hindrance to short-term rallies.
To sum this all up: there is still only the one sell signal (mBB), and it is in some jeopardy of being stopped out. The other indicators (save the chart of $SPX) are on buy signals. Thus it is necessary to retain longs in line with those indicators. What will trigger a reversal to the bearish side? Perhaps the resolution of the China trade deal ("sell on the news?"). In any case, we remain short-term bullish, but are keeping a wary eye out for negative developments. Don't be caught sleeping.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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