By Lawrence G. McMillan
Stocks (as measured by $SPX) made their highs on the first of March and have been struggling to regain that level ever since. Last week's breakdown beneath what appeared to be important support at 2350 generated enough selling that, this past Monday, $SPX opened down nearly 20 points and seemed primed to head lower. But buyers stepped in at 2322, and it's been nothing but up, up and away ever since. So that level represents important support now.
As for the upside, there is still some resistance. First of all, note the budding downtrend line (marked in blue on the chart in Figure 1). That line encompasses all of the resistance from 2370 up to the highs at 2400. $SPX would have to break out above there in order to re- establish its chart as definitively bullish. Put-call ratios have been on sell signals, and still are at this point. However, both ratios are beginning to slow their ascent, and that is a weakening of their sell signals.
Breadth, which had been struggling for a long time, continues to be stronger than the market right now. Both breadth oscillators remain on buy signals.
Volatility indices probed higher late last week and early this week, but the bottom line result was the same as always: $VIX could not close above 13.50, and thus it remains a bullish indicator for stocks.
In summary, the market has a little more work to do in this resistance area up to the all-time highs. If $SPX can't overcome this resistance, then another test of the 2322 level may be necessary. Hence, we are not totally bullish for the short-term. However, the intermediate-term continues to look positive, as long as $VIX remains in its benign state and breadth continues to be better than the market in general.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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