It appeared Sept. 23 that the bears had management of the stock market.
However they fumbled it badly.
Starting with a modest oversold rally Sept. 24, the broader market has staged a powerful advance — backed by a few of the widest breadth shortly. Now the S&P 500 Index
has damaged out over what had been resistance round 3,425-3,430 factors. That has modified the S&P 500’s chart’s designation to “bullish” (in my view), and the following goal is the all-time highs at 3,588. A reversal again beneath 3,400 may alter this bullish outlook, however that doesn’t seem probably.
Fairness-only put-call ratios have rolled over, and so to the bare eye, this cancels out their latest promote alerts. Nonetheless, they’re nonetheless on “sell,” based on the computer-analysis applications that we make use of. The pc is utilizing a statistical common, and by that measurement, there are nonetheless some very low numbers coming off the 21-day shifting common.
There are even decrease numbers approaching proper now, as name shopping for has been enormous over the previous week or so. The issue is, we’re not getting “average” readings, and till we do, the promote alerts ought to be held in abeyance.
Breadth, nevertheless, did arrange purchase alerts. Breadth has been spectacular on this rally. First, the breadth oscillators turned to purchase alerts Sept. 28. Breadth had been oversold previous to that — the one space through which we did see an oversold situation. Now, these purchase alerts have expanded into overbought circumstances. However “overbought” is an efficient factor when the S&P 500 is starting a brand new leg increased, because it seems to be doing now.
Furthermore, the cumulative advance-decline quantity line has made a brand new all-time excessive. That may be a very bullish indicator and forecasts that the S&P 500 will comply with. For this indicator we maintain a each day operating sum of “volume on advancing stocks minus volume on declining stocks.”
The cumulative advance-decline line (utilizing points, however not quantity) has additionally made a brand new all-time excessive. That one will not be a predictive indicator, however the truth that these breadth indicators are making new all-time highs is sort of superb, provided that the S&P 500 remains to be effectively beneath its all-time highs.
New highs are dominating new lows by a large margin as soon as once more, so this indicator is bullish as effectively.
Volatility continues to dwell in a world of its personal — largely due to the election and the anticipated volatility that’s going to happen afterward, if the election is contested. For the document, the VIX’s
“spike peak” purchase sign expired and so nothing is in place in that regard. On the pattern of VIX, it stays barely beneath its 200-day shifting common (MA), and the 20-day MA of VIX additionally stays barely beneath the 200-day MA.
These are usually bullish indicators for the stock market, however as has been famous many instances, the truth that VIX is staying within the mid-20s signifies that this isn’t a standard time for the index.
As for the assemble of volatility derivatives, it’s being closely manipulated by the post-election choices as effectively. VIX is a 30-day volatility measure (trying ahead), and for the primary time, each “strips” of S&P 500 choices which are essential to calculate VIX expire post-election. That has stored VIX elevated, although the stock market is rallying — a seeming conundrum, however not likely, while you perceive what is occurring.
October and November VIX futures are inflated as effectively, as a result of their underlying S&P 500 choices expire post-election too. In actual fact, Nov VIX futures are dearer than October VIX futures, and people November VIX futures are primarily based on S&P 500 choices that expire Dec. 18. So which means merchants predict post-election volatility to proceed into late this yr. They may not be right, however that’s what they’re anticipating — not less than based on the pricing of those post-election choices.
In abstract, we have now sufficient bullish indicators — primarily the breakout over 3,430 and the robust breadth readings — that we have now modified our short-term outlook to bullish. So long as the S&P 500 stays above 3,400, that outlook will stay in place.