Yesterday's action was the first time in quite a while that the market has reacted to negative news. An overbought $SPX sold off nearly 30 points on news that the Senate is going to delay a corporate tax cut bill until 2019. But then the bulls came to the rescue once again, regaining about two-thirds of the losses in a positive intraday reversal. Not only does that still prove that the $SPX chart is positive, but it also establishes a support area at roughly 2565 -- the place where both last week and this week intraday selling halted, and a strong intraday upward reversal began.
Equity-only put-call ratio charts have become mixed. The weighted ratio remains on a sell signal, but the standard ratio (Figure 2) has rolled back over to a buy signal.
Market breadth is not mixed. It is negative. There has been a distinct lack of positive breadth on this most recent rally, and so both breadth oscillators have remained on sell signals since late October.
Volatility indices remain low and thus in a benign spot for stocks. Stocks can continue to rise, even though $VIX is extremely overbought (at or below 10).
In summary, until $SPX breaks support or $VIX breaks out to the upside, the intermediate-term outlook will remain positive. Other sell signals and overbought conditions give compelling arguments for a short-term pullback, which has had trouble materializing, but whose probabilities are still high.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.