The major indices broke to the upside in the last week or so, overcoming what had been resistance and penetrating through the downtrend lines that had demarcated the August decline. This is positive action, of course, and $SPX now has support at 1220 once again -- a level that has been an inflection point for most of this year. This now means that the early August highs are the next resistance point for all the major averages $SPX, $DJX (the Dow), $OEX, and QQQQ. This once again raises
the discrepancies between these averages. The August highs represent yearly (and actually, multi-year highs) only for $SPX. For the others, the yearly highs were made earlier. Usually, when $SPX is the leader, that is not as positive for the overall market as when QQQQ does. Mitigating that somewhat is the fact that small cap indices such as $SML and $RUT are aiming at their August highs -- as $SPX is -- and those highs represent all-time highs.
The bounce off the bottom was swift. Mostly it occurred on two days -- August 31st when $SPX was up 12 and September 6th, when it was up 15. The equity-only put-call ratios usually take a little longer to roll over to a confirming signal, since they are 21-day moving averages. Consequently, just now are they beginning to roll over. Figures 2 and 3 show this. Each has been marked with a "B?" to denote that the rollover is tentative at this time -- although it should be pointed out that our computer analysis confirms these rollovers as buy signals. Also, both the QQQQ and $NDX weighted ratios have rolled over to buy signals. Market breadth was better than the market when the August decline took place. That is, breadth was often positive and the advance-decline line didn't decline all that much. However, now that the market is rallying, our oscillators have been slow to rise. At the current time, both are barely into overbought territory. We like to see the oscillators get
strongly overbought at the beginning of a new bullish move -- as confirmation that the move is strong and broad. Currently, breadth is just marginally supportive of this new upside breakout by $SPX.
Finally, let's look at volatility ($VIX). Figure 4 shows that $VIX did peak in late August, on a closing basis. It has retreated since then punching through the uptrend line in the process. So that's positive confirmation of sorts from $VIX, but is hardly the strong type of reversal you'd normally expect to see. It would take a move below 11.50 by $VIX for the strongest confirmation.
In summary, while there are confirmations of the $SPX move from our technical indicators, they seem rather lukewarm "testimonials" to me. As a result, we are not going to buy into this market right now. Perhaps we will if $SPX breaks out to new highs and/or the confirmations seem stronger, but not at this time.
