By Lawrence G. McMillan
The market continued its upward march from the lows of Friday morning, right after that negative unemployment report. New closing highs were made, and it looks like this morning will finally bring about a new intraday high on $SPX, which is the last “hurdle” left from the 2007 highs. S&P futures are up about 5 points in Globex trading, and so that implies $SPX itself would open somewhere near 1579, which would be a new intraday high. From here, there is no actual resistance, since the market has never been this high before, but round numbers often provide some sort of resistance, to $SPX 1600 might be the next stop. Obviously, 1540 is major support.
As we said yesterday – and have often said before – price is the best and most significant indicator, so if $SPX is breaking out to new highs, it really doesn’t matter much what the other indicators look like. For the record, they remain somewhat bearish. Equity-only put-call ratios remain on sell signals, once again beset by heavy put buying (which is certainly protective put buying). Market breadth was rather lukewarm again (as it has been many times in the last few weeks), so the breadth oscillators remain on sell signals.
Volatility indices ($VIX and $VXO) are bullish, though, as is the construct of the $VIX futures. With $VIX below 14 (actually, below 13 now), it’s an all-clear sign for stock bulls.
In summary, the market is breaking out to new highs, but isn’t really all that overbought now – at least by conventional measures. We’ll be reviewing all of these in the next two days (in the course of publishing The Option Strategist Newsletter), but I don’t expect to find any negative hidden signals. I suppose it would be negative if $SPX once again falls back below 1560, for that would once again raise the possibility of a false upside breakout. But that doesn’t seem likely.
This market comment was taken from this morning's edition of The Daily Strategist Newsletter.
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