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McMillan Market Commentary 6/25/4


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#1 TTHQ Staff

TTHQ Staff

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Posted 25 June 2004 - 01:58 PM

Stock Market


The market seems to be toying with both the bulls and the bears,
although the bears are taking somewhat the worst of it. Most days
have been rather dull, with an upside bias. Then, on Wednesday, the
market finally broke out to the upside, putting together a very strong
day and exceeding the resistance levels that we had previously noted:
557 on $OEX, 1142 on $SPX, and 10,450 on the Dow. But the next
day, the market fell back below those levels. We continue to remain
bullish, however, as very few observers are calling for the market to
challenge the yearly highs. That is, there are very few short-term bulls
now.

The chart of $OEX is shown in Figure 1. It is clearly rising, and
the 20-day moving average is tracking upward nicely. There is
resistance at the April highs (562) and the yearly highs (573). We
expect this market to challenge the yearly highs soon, and give it a real
good chance of breaking on through -- as long as our other indicators
remain bullish.

Equity-only put-call ratios continue to decline (Figures 2 and 3).
That is bullish, and these indicators will remain on buy signals as long
as they continue to decline. The "standard" ratio (Figure 2) is still
early in its buy signal, judging by the fact that the line is still rather
high on its chart. The weighted ratio -- which gave its most recent buy
signal at an extremely high (bullish) level -- also remains very bullish
as it is dropping consistently. Eventually, both of these will bottom
and turn higher, which will be sell signals, but until that happens, they
remain bullish.

Market breadth has expanded in line with the recent bullishness
of this rally.

Finally, volatility has declined (Figure 4) and a declining $VIX
is bullish. The red line on the chart shows the current trend of
volatility. It is nearing 8-year lows once again. Despite the fact that
many analysts view a low $VIX as potentially bearish, we are not
worried -- at least not at these levels. If $VIX were to rise above 18,
then we might be concerned, but not until then.

The bottom line is that our indicators remain bullish and so do
we. We are looking for the broad indices to challenge their yearly
highs in the immediate future.

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