By Lawrence G. McMillan
The stock market rally that begin on March 14th continues to push higher. It has now risen about 400 points in $SPX terms, and is above its 20- and 200-day moving averages. So the only resistance remaining is the double top at 4600, from early February. If that is overcome, then the $SPX chart will be back in a bullish mode. However, in the past, similar rallies have met with bearish fates after failing to overcome resistance. The last time this happened to any significant degree was in October-November 2018.
Along the way, many (most?) of our short-term indicators have generated buy signals, so we have traded those alongside a "core" bearish position. Let's review those now:
Despite a couple of serious down days this week, equity-only put-call ratios have continued to fall thus remaining on buy signals. In addition, and very importantly in my opinion, they have now fallen below their February lows, which is quite bullish for stocks.
Meanwhile, market breadth has been bouncing around rapidly, as the market seesaws its way higher. Since these oscillators are so short-term, they are subject to whipsaws, but if breadth can expand on an $SPX breakout over 4600, that would be very constructive. Conversely, if breadth begins to weaken again as $SPX challenges 4600 that would be a negative warning sign.
$VIX has continued to plunge, and the $VIX "spike peak" buy signals of late February and early March have been profitable. The intermediate-term trend of $VIX has not rolled over yet, and it remains negative.
In summary, the picture is more bullish than it has been all this year, but it is still not an all-clear for stocks. We have buy signals from the short-term indicators, but the intermediate-term signals still require that $SPX close above 4600 and $VIX close below 21 before they can be considered bullish. If those levels hold, then the bears will have another chance.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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