Stocks have had trouble advancing since June 11th, which is when the strong rally that began on May 29th petered out. This week, especially, has seen a pullback that reached the rising 20-day moving average and also tested support just above 2740. So far, this is nothing more than a simple correction, and the indicators have remained bullish for the most part.
The horizontal red lines in Figure 1 denote the pertinent support and resistance levels. There is resistance at 2800, and then at the all- time highs of 2870. Meanwhile, the nearest support area is the one at 2740. For now, $SPX is locked in a tight trading range between 2740 and 2800, but it should be able to break out of that range fairly soon.
The rate of descent of the equity-only put-call ratios has slowed to a crawl. In fact, both ratios edged higher recently. But according to the computer analysis, they are still on buy signals.
Meanwhile, negative breadth this week has caused both breadth oscillators to roll over to sell signals, as of the close on Thursday, June 21st. At this time, none of the other indicators are bearish, so we would not get too aggressive with these sell signals.
The last category of indicators that we routinely analyze is volatility. It remains solidly in the bullish camp, even though there was a rise or two this week. As long as $VIX remains below 15, it is not a problem for stocks.
In summary, it seems we go from week to week without much change in the indicators or the market. The outlook is still bullish for now, but things aren’t as solidly bullish as they were. Some of the indicators (put-call ratios and breadth, in particular), have reached overbought stages or even sell signals. But as long as the support at 2740 holds on the $SPX chart, the bulls still have a chance at loftier goals. For now that is all that matters.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.