Weekly Stock Market Commentary 1/18/2019

The oversold rally has carried farther than many had expected. This is not too surprising, for the market is attempting to fool as many people as it can. We have participated in this rally, in accordance with the buy signals from our various short-term indicators and those indicators are still on buy signals. We thus expect the short-term rally to continue.

But the $SPX chart is still negative. There is still a pattern of lower highs and lower lows, occurring beneath a declining 200-day Moving Average. That is a bearish chart. There is clearly support at 2350, the late December lows. On the upside, $SPX has overcome the resistance at 2600 and is moving into a more congested area from 2640 on up.

Equity-only put-call ratios remain on buy signals. They have rather stubbornly been remaining at high levels and have only begun to sharply decline in the past couple of days.

Market breadth has been extraordinarily strong. Of course, the breadth oscillators are on buy signals and are deeply into overbought territory, after this many days of strongly positive breadth.

$VIX is still high enough, though, that its long-term trend is up, which is still a worry for the stock market. But a $VIX close below 16 would be bullish in that it would terminate the uptrend.

Most of our short-term indicators remain on buy signals, and thus we remain short-term bullish and longer-term bearish. That is a balancing act that may be hard to maintain. Right now, there seem to be a lot of bears on TV talking about “W” bottoms, retests, and resumption of the bear market. I would think that the current rally has to carry far enough so that a great number of these bears will have to relinquish their position before the market can turn lower again.

Weekly Charts

S&P 500 (SPX), CBOE Market Volatility Index (VIX), 21-Day Equity Only Put Call Ratio (PC21), and Weighted 21-Day Equity Only Put Call Ratio (PC21 w) charts updated each Friday.

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