Weekly Commentary 9/28/2012

By Lawrence G. McMillan

The broad market, as measured by the S&P 500 Index ($SPX) remains in a bullish uptrend. The recent selling has drawn the index down from the top of the bullish channel that has defined this uptrend since early June (see Figure 1), but it only pulled back about halfway through the channel.

Equity-only put-call ratios are mixed. The standard ratio (chart, above left) continues to decline nearly every day. Thus it remains on a buy signal. The weighted ratio has now curled upward and is marked as a sell signal.

Market breadth has generated sell signals, after having been extremely overbought about two weeks ago.

Volatility indices ($VIX and $VXO) have remained at relatively low levels. $VIX is still in a downtrend, and that has bullish portent for stocks.

In summary, the $SPX and $VIX charts remain bullish, while breadth and put-call ratios are weakening. The put-call ratios are important indicators, but they sometimes give repeated sell signals before the market actually drops. So at this time, we remain bullish. We would need confirmation from the $SPX chart in the form of a breakdown below 1395 before turning bearish.

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