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Weekly Stock Market Commentary 5/8/2020

By Lawrence G. McMillan

Stocks continue to rally, as they have been since March 23rd. There was a rather sharp pullback about a week ago, but it merely pulled back to the rising 20-day moving average. After having touched it, $SPX is rallying again.

There is resistance at 2955 -- last week's high -- and it appears that might be challenged again soon. Above there, there are a number of resistance areas near 3000, including the declining 200- day Moving Average.

Equity-only put-call ratios remain on buy signals, as the ratios have continued to decline since their well-timed buy signals on March 24th.

Market breadth has been all over the place, but it has not exhibited the kind of strength concomitant with a rally this strong. Usually, that type of divergence exacts a toll, eventually.

Volatility continues to reflect a mixed picture. In the short term, $VIX is trending sharply lower, and there are $VIX "spike peak" buy signals in effect.

From an intermediate-term viewpoint, however, $VIX is bearish and will remain that way as long as it continues to close above its 200-day Moving Average.

As the rally progresses, most of our indicators have improved. In addition, there have been several short-term buy signals and even a couple of more intermediate-term ones (put-call ratios, for example). However, I am not buying the concept of a "V" bottom, as all previous major crashes have had a retest -- sometimes months later, but still a retest. So, we are maintaining a "core" bearish position, while trading around it on the long side as this rally continues.

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

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