By Lawrence G. McMillan

Stock prices continue to rise, in general. There does seem to be a slowing of the upward momentum, but considering how overbought the market had gotten, much more was expected of the bears.

The $SPX chart remains bullish, in that it is rising, and all of its trend lines are rising as well. The index has still not closed below its rising 20-day moving average since early September — a period of nearly two months.

There is support at 2545 (last week’s low), 2510, and 2480. In fact, one might even say the lows of yesterday, from which $SPX reversed upward to close on its highs is another near-term support level, at 2565. Overall, since the $SPX chart is bullish, the intermediate-term outlook is necessarily bullish as well.

Both equity-only put-call ratios are on sell signals, at least according to the computer analysis programs. The signal is much clearer on the weighted chart (Figure 3), where you can see that the ratio recently made nearly 4-year lows but now has rolled over and is beginning to rise.

Market breadth has continued to be weaker than the market. Both breadth oscillators remain on sell signals, despite the fact that $SPX has made several new all-time highs recently.

Volatility indices remain low and, while they might have “flinched” a couple of times in recent weeks, they have not closed above any significant levels (with the sole exception of $VIXMO, which we’ll get to in a minute). $VIX continues to be overbought and hover around 10. But stocks can rise while that is the case.

In summary, the $SPX index and $VIX index are remaining solidly in the bullish camp. Elsewhere, there are short-term worries. So far, this seems only to have caused a couple of intraday downward moves, but we would expect more of a correction over the next six weeks or so, before prices once again resume their upward intermediate-term trend.

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

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