By Lawrence G. McMillan
Stocks broke upward out of the trading range this week, and have made new intraday highs for this rally each day since. Thus, the rally that began from the extreme oversold conditions on March 20th remains intact. There should be support in the 2940-2950 area, which was the top of the recent trading range. As for overhead resistance, the 200-day moving average was supposed to offer resistance, but so far it hasn't.
Equity-only put-call ratios continue to decline and thus remain on buy signals. The standard ratio (Figure 2) is now down to nearly the levels of extreme optimism that existed this past January. Given the state of the world right now, that is really quite amazing.
Market breadth has improved somewhat over the last two weeks. Breadth has been positive and quite strong on 7 of the last 10 trading days. That has moved the breadth oscillators back to buy signals.
Volatility remains somewhat elevated, even if it is still declining. The $VIX "spike peak" buy signals are still in effect. But $VIX has basically stopped going down. It continues to remain in the high 20's. Meanwhile, $VIX remains above its rising 200-day moving average, which is just above 24 currently. As long as that is the case, there is still the potential for a significant move to the downside by stocks.
In summary, the short-term continues to be strong, albeit overbought. We have no confirmed short-term sell signals in place at this time, so we remain short-term bullish. However, we are maintaining a "core" bearish position because of several factors, not the least of which is the position of the 200-day moving averages of both $SPX and $VIX.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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