The upside breakout over 3430 that began last week extended into a buying spree this week. A modest correction then ensued. This pullback seems normal, so far, and the bullish case is still intact as long as $SPX remains above 3400.
The equity-only put-call ratios are grudgingly bullish, as these ratios have turned down again even though they are still at very low levels on their charts. It feels like more of a "sell cancel" than a "buy."
The daily equity-only ratios have been very low this week, indicating that the call buyers (call them Portnoys or Robinhoods, or whatever you like) are still moving heavily into this market. Like all extremely overbought situations, it won't end well, but for now these ratios are moving lower, and until they roll over and begin to rise, they are not on sell signals.
Breadth has been the leading and most bullish technical indicator in this current rally. The breadth oscillators generated buy signals on September 28th and remain on those buy signals today.
This brings us to volatility, which is operating in its own world currently. On the surface, $VIX is below its 200-day moving average which is positive for stocks. However, the 200-day moving average of $VIX is above 30 and rising. The last time that the 200-day MA of $VIX was above 30 and rising was November 2008 not a good time to be buying stocks.
In summary, we do not have any sell signals in place, and the $SPX chart is bullish. That is why we are short-term bullish but are also remaining alert for any further signals.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.