Weekly Stock Market Commentary 7/28/2023

By Lawrence G. McMillan

For the most part, stocks have remained in an extremely bullish mode over the past week. The one "hiccup" was when heavy selling hit the market the day after the FOMC announcement, ostensibly due to some financial news out of Japan. That created an 80-point range day in $SPX, which is one of the larger ones in recent months. Even so, stocks seem to be bouncing back quickly.

The Thursday peak was at 4607, so that is temporary resistance. Stronger resistance exists at 4650 a number that seemed to be a long ways away just a short time ago, but now is within easy striking distance. There is support at 4530, 4440, 4385, 4330, and 4200. The two major support lines (blue horizontal lines on the chart in Figure 1) are at 4330 and 4200. Since SPX has advanced so far, I would consider it very negative if 4330 were violated.

Equity-only put-call ratios are still clinging to buy signals, but are extremely overbought. Sell signals are probably not far off in the future. The computer analysis programs are "saying" that the weighted is currently on a sell signal, but the standard is not quite there yet. Regardless, I would want to visibly see these ratios begin to rise before we acted on them. So, for now, we are continuing to categorize these ratios as being on buy signals, but deeply overbought.

Breadth has generally been strong since July 7th until yesterday, that is. Even though breadth was very bad yesterday, the breadth oscillators are still on buy signals for now. Another day of negative breadth would roll them over to sell signals. Which would then lead to the two-day confirmations and potential whipsaws that we have seen from the breadth oscillators for most of this year.

$VIX has remained subdued, in the 13-14 range. As long as that is the case, stocks can continue to rise, for the trend of $VIX buy signal will remain in effect. Problems would arise if $VIX suddenly jumps higher over a short period time. But even when stocks sold off sharply yesterday, $VIX did not rise much.

In summary, we continue to maintain a "core" bullish position given the positive nature of the $SPX chart. We are rolling in-the- money options up to higher strikes and raising trailing stops, but are remaining long. We will, however, trade other confirmed signals around this "core" position.