The stock market ($SPX), has continued to rally this week, so the bullish case gained some traction across a number of factors. The close above resistance at around 4000 was a positive step in terms of price and sets up a move to at least the 200-day moving average or the 4070-4100 area.
The equity-only put call ratios have started to curl higher, with the CBOE ratio again posting an extreme/suspect reading of 1.34 level (above 1 is rare). This is potentially bearish, but so far, the computer analysis continues to confirm that these ratios are on buy signals.
Breadth has flip-flopped between buy and sell signals of late, so we are not relying on this indicator heavily at this time.
The intermediate-term trend of $VIX remains downward and that is bullish for equities. In addition, the construct of the $VIX futures curve is upward-sloping, with an expanding premium in the $VIX futures relative to the $VIX Index (almost > 2). So, these are bullish signs. The first sign of trouble would be if $VIX were to rise at least 3.00 points over any 3-day period.
In summary, the $SPX chart is still in a downtrend, so the current rally is still just a bear market rally. Stock prices and the technical backdrop are both in synch (short-term bullish) and seasonality is turning bullish as well. Therefore, the bull case appears to have regained momentum, but it is important that it maintain positive price momentum. A close below 3900 could be a game-changer.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.