Weekly Stock Market Commentary 9/1/2023

By Lawrence G. McMillan

Stocks have continued to rally ever since the 4330 level was successfully tested a couple of weeks ago. So the larger challenge for the market is whether or not it can overcome the resistance at 4600 -- the late July highs. If so, then all-time highs might soon be in sight. But if not (i.e., if this rally is just an oversold reaction), then a failure of support at 4330 would be a large negative for stocks.

Equity-only put-call ratios have remained bearish during the current rally, since put buying has been fairly heavy all along. These ratios will remain negative in their outlook for stocks until they roll over and begin to trend lower.

Market breadth quickly switched from a deeply oversold level to buy signals and modestly overbought conditions. The previous sell signal was successful, but these oscillators have been subject to extreme whipsaws over the past 10 months or so. The new buy signals are in place as of August 28th, and have been confirmed via the "usual" two-day process.

So, the above indicators -- which more or less measure market internals -- are mixed, but are in a more positive state than they were a couple of weeks ago. The volatility indicators, on the other hand, have generally remained bullish and are continuing to do so. $VIX has dropped sharply over the past week or so and is at relatively low levels again, dropping below 14. That means that the "spike peak" buy signal remains in place, as does the intermediate-term trend of $VIX buy signal. As one can see from the chart in Figure 4, $VIX is once again approaching its annual lows.

In summary, we continue to maintain a "core" bullish position, although its delta is only now beginning to take on more value. We have traded and will continue to trade other confirmed signals around that "core" bullish position.