Wednesday, October 10th, 2007
Stock Market
Last week's upside moves on Monday, October 1, and Friday, October
5, pushed most averages, including the S&P 500 ($SPX) to new all-
time highs. Despite that bullish action, there were still some skeptics
regarding the strength of the broad market. Such skeptics were likely
under-invested fund managers who were hoping for a pullback to
allow them to buy into the market.
The market is rarely so accommodating, though, and proved it by
rocketing higher after a rather benign release of the FOMC meeting
minutes on Tuesday of this week. Once the market started to move
upwards on that news, the buyers jumped in and propelled it to yet
another new all-time high. This is fairly standard action, which is
usually caused by under-invested bulls rather than shorts having to
cover (in our opinion, the shorts covered a while ago, to a large
extent).
These buyers are desperate to show a high percent of money at
work and so are anxious to spend their cash before the next reporting
period (month-end October, most likely).
Technically, the small pullback on Monday would be the first
support level for $SPX: the 1540-1550 area. Below that, the 1520-
1530 area is support as well, although we don't expect to see that level
tested soon.
The equity-only put-call ratios continue to decline on their charts.
That is intermediate-term bullish. Some might point out that they are
nearing the bottom of their charts, and that is true. But, there is no
reason why they can't go lower than the lows of the past two years.
They often have in the past. We will remain bullish on this indicator
unless it rolls over and begins to rise.
Market breadth (advances minus declines) has finally joined the
party. Advances have completely dominated declines in recent weeks.
As a result, it is constructive to see breadth register a severe
overbought condition.
Volatility indices ($VIX and $VXO) have continued to decline,
reaching their lowest levels since last July. A declining $VIX chart is
bullish for the broad market, from an intermediate-term basis, and
that's what we have now.
In summary, our indicators are still bullish -- especially from an
intermediate-term viewpoint -- and thus we expect higher prices for the
broad market.
McMillan Analysis Corporation
PO Box 1323
Morristown, NJ
Info@OptionStrategist.com
www.OptionStrategist.com
(800)724-1817
