The stock market continues to work its way higher, albeit at a
maddeningly slow pace. Our technical indicators remain bullish, though,
so we continue to go with the bullish flow. The charts of the major
indices have all improved, and that is good. $SPX, $DJX (the Dow), and
$OEX (barely) have all made new highs for this move and are thus
trading at their highest prices since March. We continue to feel that they
will assault the yearly highs soon.
Equity-only put-call ratios have continued to remain strongly on
buy signals. Yet, they really aren't overbought. You can see from
Figures 2 and 3 that the ratios have room to move lower before
encountering the bottom of the chart -- at which point one might judge
them overbought. But at their current levels, they are just fine -- and
bullish.
During this past week, especially, breadth has been very positive.
To a large extent, it's reflective of the strength in the small-cap indices,
such as Value Line ($VLE).which is already approaching its yearly
highs. When the small cap indices do well, breadth is always expansive
(i.e., advances lead declines by a wide margin), since there are so many
stocks in these small-cap indices.
Finally, volatility has continued to decline. $VXO, the index that
measures the implied volatility of $OEX options, closed at its lowest
level since December, 1995 -- nine and half years ago. $VIX wasn't far
behind, as the next day (today), it too closed at a 9-1/2 year low. As long
as $VIX languishes at these low levels, it's supportive of the bullish case.
We would become concerned if $VIX rose more than 3 points from these
levels -- which would be slightly above 14. But with the way the market
is acting, it appears that volatility is on track to make a low sometime in
early July -- in line with its historic seasonal low. Hence the market
should be able to continue rising during that time, at least.
Overall, we have no sell signals from our indicators and thus we
remain bullish.
