Our indicators remain bullish and so do we

By Lawrence G. McMillan

The market sold off sharply on Tuesday when Fed Chairman Bernanke spoke, but then staged a strong reversal rally – closing hear the highs of the day.  This continues the strong pattern on the $SPX chart, and we expect a successful challenge of the 1375 resistance area shortly.

Equity-only put-call ratios continue to decline, and that is bullish for stocks.  They have not declined so far that they would be considered overbought.  Therefore, these intermediate-term indicators are pointing strongly higher.

Market breadth was positive, but the dichotomy in the breadth oscillators remains: the "stocks only" oscillator is still clinging to a sell signal, while the NYSE-based oscillator is on a buy signal and is in modestly overbought territory.

Volatility indices ($VIX and $VXO) dropped again, and their continued downtrend is bullish for stocks.  With $VIX below 17, one can consider it overbought, but that would be a minor impediment, even if true.

The $VIX futures continue to retain premium.  Today, the August futures become the front month, as the July futures have expire.  August premium is 2.38, which is fairly large.  Premiums enlarge out along the futures spectrum, as the term structure continues to slope steeply upward.  The Feb (2013) $VIX futures have a premium of 9.73!

In summary, the indicators remain bullish and so do we.

This market commentary was taken from this morningng's The Daily Strategist Newsletter.