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McMillan Market Commentary 11/19/4


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#1 TTHQ Staff

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Posted 19 November 2004 - 02:47 PM

Stock Market

The market is now getting quite overbought, but really hasn't shown many signs of slowing down. $OEX is approaching its yearly highs, near 573. $SPX is already at another new high, and QQQ is within a tiny fraction of a new high. The Dow continues to be the laggard of the group, but it's not that far from new yearly highs as well. There are clear support levels on the charts (555 and 547 for $OEX, for example; 1173 and 1160 for $SPX). The one negative is that the index charts are pretty much straight up since late October, and that's a rate of ascent that can't be maintained. In short, they're showing signs of being severely overbought.

Equity-only put-call ratios have no such reservations. They are both very bullish and have not yet reached the lower levels of their charts. Thus, they are not overbought and continue to remain the most bullish of our indicators.

Perhaps the most overbought indicator is market breadth. In 2003, after similar overbought reading, the market traded up briefly and then went sideways to down

for about two months while the overbought conditions abated. A similar scenario could occur now, with perhaps a stable to downward bias until bullish seasonality kicks in near the end of the year.

The final indicator is volatility ($VIX). It has remained at low levels, and closed below 13 once again today. A low $VIX is certainly not bearish (we figure $VIX would have to climb above 16 before it was considered to be negative). On the other hand, such a low $VIX does indicate a likelihood that we will soon see a more volatile market.

In summary, these are bullish indicators and we expect that an intermediate-term bull market phase is in effect. The fact that there are overbought conditions in some of the indicators means that the rapidity of this advance will have to wane, but any corrections should be more sideways than really negative.



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