The key to whether the market is bullish or bearish is $SPX support at 4370. Yesterday (August 19th), $SPX traded right down to that level and bounced from there again. That is the third time in less than a month that $SPX has bounced off of that level. Hence, it is valid and substantial support. If it gives way, there will likely be surge of selling. But as long as that support at 4370 holds, the $SPX chart is still bullish, with moving averages trending upward.
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.
On the surface, everything appears fine: $SPX made a new closing all-time high twice this week once after a swift upward reversal off of support near 4370. However, it has not made a new intraday all-time high since July 29th, so in reality it is trapped in a very tight trading range between 4370 and 4430 (the all-time highs) A breakout of this range in either direction should give the Index some short-term momentum.
One of the tougher choices an option trader faces is what to do with a profitable position. That’s a good choice to have, but it might not be an easy one. Our philosophy is always to let profits run. Therefore we use trailing stops, not targets. Targets only take you out of your best positions way before they have run their course. But even within the framework of using trailing stops, there are some choices to be made besides just raising the trailing stop as a long call position gains profits. Specifically, when should a profitable long call be rolled up or a profitable long put be rolled down – if at all?
As $SPX has recovered from its July 19th lows and driven to new all-time highs, not a lot has changed regarding the overall picture. It's still the big-cap tech stocks leading the way, as the NASDAQ- 100 ($NDX; QQQ) and Dow ($DJX; DIA) are near all-time highs as well. But the internals of the market are still weak as manifested in the Russell 2000 Index ($RUT; IWM).