Weekly Stock Market Commentary 2/7/2020

By Lawrence G. McMillan

The swift rally that took place over the last week has left the indicators in a mixed state, with some of the longer-term indicators still in a bearish mode after the major overbought conditions that existed in late January. On the other hand, short-term indicators gave some oversold buy signals, and those have certainly carried the day this week.

There is only support level that matters -- 3210 on $SPX. If that had been broken, the bears would have been out in full force, but it held and so the bulls are back.

Equity-only put-call ratio charts remain on sell signals. They are rising off the extreme overbought levels of mid-January, and they don't appear to be reversing anytime soon.

Market breadth has improved greatly this week, and both breadth oscillators are now on buy signals. That's the story on the surface, buy yesterday when $SPX closed at a new high, breadth was negative. That's not a good sign.

In terms of implied volatility, the trend of $VIX had gone into a bearish mode when $VIX broke out above 16 on January 27th. It is trying to reverse that now. 2-day close beneat 15 would turn the $VIX indicator bullish for stocks.

So, the indicators remain somewhat mixed. I still feel that some caution is warranted before jumping completely on the bullish bandwagon. But we would be forced to turn bullish if $SPX can close above 3337 again and $VIX can close below 15 again.

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