Weekly Stock Market Commentary 12/18/2020

By Lawrence G. McMillan

The major indices -- $SPX/SPY, $NDX/QQQ, $DJX/DIA, and $RUT/IWM -- are all at new all-time intraday and closing highs. Clearly, this market has momentum.

There is support on the $SPX chart in the area of the early November highs (3644) and that has been tested a few times recently, with probes down towards 3630. So that area of 3630-3645 is support. There is further support at 3550. A close below 3550 would be quite negative, and would call for the establishment of bearish positions. That doesn't seem likely in the near term.

As we discuss the indicators, you will see that many are in overbought states. Of course, one of our most important mottos is "Overbought does not mean sell."

Equity-only put-call ratios are a prime example. They are very low on their charts -- in fact, at 20-year lows in most cases -and yet they continue to decline. A declining equity-only put-call ratio is bullish for stocks.

Breadth appeared ready to stumble this past week, but righted itself in time to avoid a sell signal. Both breadth oscillators remain on buy signals, in modestly overbought territory.

Volatility remains the one area that is not overbought in the classic sense, and it does reflect some potential worries for the stock market. What would be worrisome would be if $VIX were to spike up more than 3 points.

The most important thing to note is that none of our indicators is on a sell signal at this time. So, we remain bullish.

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