As we come to the end of the year, the market continues to look strong.
We will stay long this intermediate-term rally until the prices of the
major averages ($SPX, $OEX, etc.) fall below the rising trend lines
(20-day moving averages, for example). Most made new closing highs
this week, as the year-end Santa Claus rally and the January effect are
combining to life the market, albeit modestly in this very low-volume
week. A correction might be expected early in the new year when
these seasonal periods end, but the overall trend is up until otherwise
noted.
Equity-only put-call ratios have maintained their previous
statuses. The standard ratio has made a series of slightly lower lows,
and that means it remains on its buy signal (Figure 2). However, the
weighted ratio has not improved since it gave its sell signal some time
ago (Figure 3). This sell signal from the weighted ratio remains our
only negative indicator, so we are noting its presence, but not acting
on it.
Market breadth has been strong, and we consider this positive in a
rising bull market.
Finally, volatility ($VIX) made new lows again this week,
although it was surprisingly up nearly a point today. Our general rule
of thumb is that any rise in $VIX is not particularly alarming unless it
rises 3 points above its lows. That means it would have to climb to
about 14.50 before we'd become concerned. So far, it hasn't
approached that level.
In summary, we remain bullish, while admitting there are some
overbought conditions. Such overbought conditions might engender
a small correction or sideways movement, but only a breakdown by the
major averages below trend lines or below support would give us real
concern. So far, there hasn't even been a hint of such a breakdown and
thus we remain bullish. If our longer-term targets are correct, we
expect $OEX to rise to 670-690 and $SPX to rise to 1410-1430. Of
course, we will watch our technical indicators and, if they should give
sell signals before those targets are reached, we would turn bearish, but
until then we expect to enjoy an upward ride.
