The rally off the February lows continues to make new relative highs. Thus, the $SPX chart remains bullish. Even the corrections are very small, just enough to alleviate overbought conditions.
Equity-only put-call ratios are interesting. The weighted ratio remains on a buy signal, but the standard ratio is in danger of rolling over to a sell signal (see Figure 2).
Market breadth oscillators have remained on buy signals, despite flirting with sell signals early this week.
Stocks continued to rally early this week, creating some overbought conditions. Since then, the upward momentum has been lost, as the market is undergoing a short-term correction to work those off.
Equity-only put-call ratios remain on buy signals, as they generally have continued to decline.
Market breadth has begun to weaken as well. In recent days, breadth has begun to wane. As a result, the breadth oscillators are barely clinging to buy signals.
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The completion of the powerful, bottoming "W" formation at the beginning of March was the launchpad for this leg of the rally. It has more room to run.
Equity-only put-call ratios continue to remain on buy signals. The standard chart has seen a slight "wiggle" develop this week, but it does not dissuade the computer programs from continuing to say that these ratios are solidly on buy signals.
After the huge rally in the stock market, from the end of World War II to the exhaustive top in 1966, there were three bear markets – each one worse than the one before. They are shown as grey, shaded boxes on the chart below. Once those ended, the market began to rally – eventually culminating in the huge technology boom market of the 1990's. Since then, there have been two bear markets. Is this the beginning of the third?
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We continue to think that this rally has more room to run on the upside, but that it will eventually give way to the over-riding bear market trendline.
Near-term, there is support at 1970 and then at 1950 (the top of the "W"). It seems that the pullback to 1970 this week was about all that the bears are going to get in the short-term.
Equity-only put-call ratios continue to drop steadily, and that is bullish for stocks.
Stocks roared ahead for about half the day on Friday, before finally selling off after 2pm. The overbought conditions continue to grow, though, and with them the possibility of a sharp, but short-lived correction.
