Thursday, October 4th, 2007
Stock Market
The S&P 500 Index ($SPX) broke out over resistance at 1530 this
week, and that was a significant bullish development. In the past
couple of days, $SPX has temporized, but we feel it will soon
challenge -- and likely exceed -- its all-time highs at 1555. That 1530
level now represents support, and below that, the 1490 area is strong
support. The upside breakout took many traders by surprise,
especially those who had been looking for a more traditional pullback
to test the support at 1490.
The equity-only put-call ratios remain strongly on intermediate-
term buy signals. As long as they continue to decline, as they have
been, those buy signals will remain in place. Only an upward turn in
those ratios would turn the picture bullish, and that seems unlikely for
the near future.
Market breadth has improved tremendously this week. In the early
stages of a new upside move, it is important to have broad participation.
Volatility indices ($VIX and $VXO) have stabilized this week.
$VIX is bullish, as it is clearly in a downtrend (noticeable by
the declining 20-day moving average). The volatility indices,
however, didn't collapse even though the market broke out on the
upside. That is not necessarily bearish (although a new uptrend in
$VIX would be), but rather indicates that traders likely expect a
relatively high level of volatility to persist, even in a rising market.
That's the sort of environment that we saw in the late 1990's, and it
may be present again.
In summary, the picture is intermediate-term bullish and will
continue to be as long as the indicators retain their current positive
states.
McMillan Analysis Corporation
PO Box 1323
Morristown, NJ
Info@OptionStrategist.com
www.OptionStrategist.com
(800)724-1817
