The S&P 500 Index ($SPX) has now made a new all-time closing or intraday high on 15 of the last 17 trading days. When the bears fail to capitalize on a selling opportunity such as Thursday, the bulls come back with a vengeance. The $SPX chart remains positive, with support at 2510.
Equity-only put-call ratios have turned bullish once again. Both of these ratios have begun to decline again, and when put-call ratios are declining, that is bullish for stocks.
The major indices pushed to new all-time highs again this week, although at a snail's pace. The $SPX chart is in a strong uptrend, and that is simply bullish. In the traditional sense, there is support at 2510, 2480, and 2400.
The equity-only put-call ratios have both rolled over to sell signals. These sell signals are confirmed by the computer programs that we use to analyze these charts, as well as by the naked eye (well, sort of).
The strength of the market was on full display this week. The indicators are still in bullish agreement with this move, but there are a couple of potential overbought sell signals setting up.
One overbought condition is that $SPX is above the "modified Bollinger Bands" shown in Figure 1. There is support at 2510, 2480, and 2400.
Finally, there has been some follow-through movement to the upside. $SPX has made new all-time closing and intraday highs on the last two days. This keeps the $SPX chart bullish, of course. There is still the strong support at 2480 (the level from which the last major breakout occurred), and now there is also support at 2488 -- last week's lows.
$SPX had made either new intraday all-time highs or closing all- time highs for eight consecutive trading days until yesterday, September 21st, when it did not. The chart remains bullish, with major support at 2480.
Equity-only put-call ratios remain on buy signals. There is a slight wiggle in the standard chart (Figure 2) but the computer analysis laughs that off. Both of these ratios are declining rapidly, as call buying has been dominant since the September 11th breakout by $SPX.
One system that we normally trade is the one that says the market declines the week after September expiration. This definition of “expiration” goes back to the days before weekly options, so it refers to the third Friday of the month (today, September 15th). Last year, this system did not work, but it has produced profits in 22 of the last 27 years. The track record is shown below. Note that a negative number is “win” (i.e., the market went down) while a positive number is a “loss.”
Late last week, $SPX broke out above a minor downtrend line, accompanied by buy signals from several indicators. It appeared that a move to new all-time highs was imminent.
However, those plans have stalled. $SPX did challenge the previous highs at 2480 but was unable to break through. This week it has struggled. So, at this time, the $SPX chart needs to break out over 2480 to be classified as strongly bullish. Otherwise it's in a trading range, from roughly 2400 to 2480.
$SPX has staged a rally that began on Tuesday's opening (August 29th) and has lasted three full days to date. The result was a breakout through the downtrend line that had been in place (see Figure 1), and that has turned the $SPX chart bullish.
On the downside, the first support level is 2440. Tuesday's rally has also left 2428 as a support area, to go along with 2420, and then the major support area at 2400. A close below 2440 be a enough to negate the current upside breakout, in my opinion.
Despite the media euphoria over recent rally days, the $SPX chart remains short-term negative because of the downtrend lines (see Figure 1). So far, this is showing no signs of being more than a short-term correction, though. It would take a breakdown through major support at 2400 in order to turn the $SPX chart truly bearish.
$SPX has broken to new lows for this move, taking out the support at 2437. That means that a test of the 2400 level is likely in the cards. There is resistance at 2480.
Even with the relative negativity of recent movements, it is worth remembering that as long as support at 2400 holds, the $SPX chart will remain positive.
