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By Lawrence G. McMillan

The two large-cap indices, $SPX and $DJX (the Dow) have moved to new all-time highs. But now $NDX is falling behind, and the Russell 2000 ($RUT) has been lagging badly all along. Of ourse, this pattern -- or similar ones -- has been in effect since mid-June (and really, even before that in the case of the Russell). As a result, negative divergences persist, but they can last for a long time even while $SPX is merrily moving to new highs.

The $SPX chart is bullish, of course, as it is trending higher, and there is well-tested support below (at 4370, 4233, 4165, and 4060 -- all shown as red horizontal lines in Figure 1).

Equity-only put-call ratios remain on sell signals, reflecting more what is happening to the "average" stock than to $SPX. The "wiggle" on the standard chart is not likely to be a reversal to a buy signal, according to our computer analysis programs.

Breadth remains a problem for the market. Yesterday (August 12th), as $SPX moved to new highs, breadth was negative once again. Even so, the breadth oscillators are clinging to buy signals.

Meanwhile, the implied volatility indicators remain bullish on their outlook for the stock market. The $VIX "spike peak" buy signal of July 20th remains in place.

The trend of $VIX remains downward, as $VIX is once again probing towards the yearly lows at 15. $VIX remains below both its 20-day and 200-day Moving Averages.

In summary, we continue to recommend carrying a "core" bullish position in line with the positive $SPX charts. As long as $SPX remains above support, one should remain long. If support at 4370 is taken out, that would change things greatly. But unless that happens, the "core" long position can be held, trading other confirmed (sell) signals around it.

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

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