Weekly Stock Market Commentary 6/5/2020

By Lawrence G. McMillan

The broad stock market continues to rip higher day after day. This morning, more fuel was added to the fire with the Unemployment Report showing that jobs were added in May! I personally think a lot of that has to do with PPP Loan Forgiveness. Meanwhile TINA (There Is No Alternative) and FOMO (Fear Of Missing Out) are seemingly dominant in traders' thinking. The uptrend in $SPX remains intact, and that is most important to keep an eye on. There are some severe overbought conditions that are going to generate sell signals soon, but unless there is an accompanying break in prices, they won't mean much.

The next target level is 3260. There is supoprt at 2970.

Equity-only put-call ratios continue to plunge as call buying has ramped up considerably in the last few sessions. The standard ratio has blown through the bullish extremes of January 2018 and January 2020 and is now at its lowest level since 2011. The weighted ratio is overbought, too, but not that overbought. Both ratios remain on buy signals.

Market breadth has been extremely positive in the last few weeks -- especially since the upside breakout by $SPX. As a result, both breadth oscillators are on buy signals and are in deeply overbought territory.

Volatility continues to be interesting. In the short-term, the $VIX "spike peak" buy signals remain intact. Meanwhile, a close by $VIX below its 200-day moving average would be bullish as well.

In summary, the short-term momentum is strong. We are seeing some extremely overbought conditions, as traders who had been cautious are now throwing caution to the wind. We will wait for confirmed sell signals before doing any put buying, and will wait for a price breakdown by $SPX before any truly aggressive positions are established. Meanwhile, continue to ride the uptrend, rolling long calls up to higher strikes when warranted.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.