By Lawrence G. McMillan
The market was extremely strong on Wednesday, but it is unclear if it was merely a double bonus of a) an oversold condition, and b) a strong commodity market. We have recently seen the stock market move in conjunction with the commodity markets, and it is possible that Wednesday's move was exacerbated by the big move in commodities. There are plenty of both bullish and bearish signs to gather from Wednesday. For example, breadth was strongly positive, so much so that the "stocks only" breadth oscillator popped up far enough to consider it a buy signal. The NYSE-based oscillator never got oversold enough to actually generate a buy signal, and it is now moving back towards "overbought." The equity-only put-call ratios are a bit cloudy as well, in that they have been wavering back and forth over the last week.
$VIX plunged today, closing just above 16. The probe to 19 yesterday was once again enough to generate a stock market rally. And, if $VIX were to close clearly below 16, that would further the bullish case. But the last few times it's gotten down to 16, the market backed off and $VIX rallied.
In my opinion, today is something of a crucial day. If the rally from Wednesday persists, and $SPX continues strongly upward, then the correction would have to be considered over. However, $SPX is still in a downtrend, and is not even above its 20-day moving average at this time, so Wednesday might have been just one of those strong, but short-lived oversold rallies. Today should hopefully clarify things.
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