Weekly Stock Market Commentary 9/20/13

By Lawrence G. McMillan

$SPX exploded to the upside after the Fed's announcement that they were not going to taper, with both new buying and short covering entering into the fray.  With $SPX now at new all-time highs, it has positive momentum, but is also extremely overbought.  This latter condition will eventually lead to some sell signals, but perhaps not right away.

$SPX should find support at 1710, the previous high, from early August.  A close below there would raise the specter of a false breakout.

The equity-only put-call ratios never did pick up on the rally. When both the put-call ratio and the underlying are rising together, that is a sign that hedging is prevalent.  In this case, traders were buying puts for protection.   Now, both ratios are on buy signals.

Market breadth indicators are bullish, but extremely overbought.

With $VIX 14, we judge that as bullish for stocks.  In fact, as long as $VIX remains below 15, it is in a bullish state for stocks.

In summary, the bulls are in charge.  Even though they have expended a lot of energy to get to this point, it is likely that prices will still move higher before sell signals eventually appear from the overbought indicators.

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