By Lawrence G. McMillan
The rally has been powerful, but is it just another oversold affair? At this point, we can't really tell. The next resistance area is at 1940-1950, and that's a more crucial point. If $SPX can rise above that level, then it will have formed a "W" on its chart, and that would be quite bullish.
On the other hand, if the 1950 resistance holds, or is quickly retraced, then a much more bearish scenario unfolds.
Put-call ratios are very bullish. Since these are 21-day moving averages, they are not necessarily good timing indicators for an abrupt market reversal, but they were this time.
Market breadth has improved a lot, as well. Both breadth oscillators finally issued buy signals this week.
Volatility indices declined during this rally. However, the overall trend of $VIX is still higher, and that is bearish.
In summary, things have improved a lot after the monster rally that took place over the last week. But one has to question whether the rally can continue. A lot of "energy" was expended to get to this point, and overhead resistance looms at 1950. So, unless the market can break out over 1950, this seems to be a relatively convenient place to sell.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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