Upside Breakout All But Confirmed ($SPX)

By Lawrence G. McMillan

Tuesday saw very little follow-through to Monday’s strong day, and that was disappointing.  Although $SPX and other major averages made marginal new all-time highs, it certainly didn’t look or feel like a good day. $SPX has technically broken out, and it has support all the way down to 1880, or even slightly below.

The equity-only put-call ratios maddeningly remain on split signals.  Even though the standard ratio dropped again yesterday, the computer program still rates it as being on a sell signal.  Meanwhile, the weighted ratio – which seems to be more in tune with reality – continues to decline and thus remains on a buy signal.

The most noticeable technical deficiency yesterday was breath.  Breadth was weak – so weak that the “stocks only” breadth oscillator slipped back into a sell signal.  However, the “oscillator differential” buy signal remains in effect, as does the NYSE-based oscillator buy signal.

Volatility indices ($VXST, $VIX, and $VXV) continue hover at low levels.  In fact, $VXST is now below 11, which is certainly in overbought territory. $VXST has not closed at this low of a level since mid-January, and that preceded a rather nasty market decline. $VIX closed at its lowest level since August of last year.  While volatility traders have certainly been correct in keeping volatility low during the last few weeks, this is beginning to feel like “too low,” and that’s not a comfortable feeling.  The entire $VIX chart is compressing downward, and it now looks to me like $VIX above 14.50 would be bearish, so we are lowering that threshold today.

In summary, the market certainly did not follow-through with a strong move to confirm the breakout to new highs.  

This commentary was originally presented in this morning's edition of The Daily Strategist newsletter.