Weekly Stock Market Commentary 6/19/20

By Lawrence G. McMillan

A week ago, stocks were on their heels after one of the worst down days on record on June 11th. Prices rallied within a couple of days, but the negativity of that day still hangs over this market. If $SPX were to fall below 2920, that would be bearish. But as it stands, the $SPX chart remains bullish as long as the Index holds above 2920.

Equity-only put-call ratios continue to fall, thus remaining on buy signals. That will continue to be the case until they visibly roll over and begin to rise.

Breadth has rebounded strongly this week, moving back into overbought territory and placing the breadth oscillators on buy signals. They had briefly retreated to sell signals after the huge down day on June 11th, but bounced back immediately to cancel out those sell signals.

Volatility is the one area that has not been overbought and which has remained in a somewhat wary state. In the short term, $VIX generated another "spike peak" buy signal as of the close of trading on June 12th (green "B" in Figure 4). It's the intermediate- term where $VIX is still showing signs of bearishness. As long as $VIX continues to trade above its 200-day moving average (it bounced strongly after briefly touching that MA on June 5th), that is a warning sign for the stock market.

In summary, the market was wounded by the huge down day on June 11th, but it has recovered somewhat -- although not filling the gap left that day. We would trade all confirmed signals, whether bullish or bearish. In the longer-term picture, though, neither side can claim complete control. The bulls need $VIX to close below its 200-day moving average before than can feel "safe," while the bears need a breakdown in $SPX and put-call sell signals before they can take charge.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.