A week ago, $SPX was struggling to break through the old highs just below 3400. That is no longer the case, as the Index made a strong move upward this week, allaying any fears of a double top and punishing the shorts once again.
$SPX is advancing so swiftly that support areas are not being established on the way up. But there are areas that might qualify: 3400 (the previous all-time highs), 3310-3320 (the lows of early August), 3280 (the July highs), and 3200 (a support area which was tested several times during the last half of July).
Equity-only put-call ratios are extremely overbought, and this week's rally in $SPX has been accompanied by heavy call buying. That has forced both ratios down to multi-year lows. Even though these are overbought, remember that "overbought does not mean sell."
Market breadth has been rather abysmal. Both breadth oscillators remain on sell signals. On many days, breadth has been negative, even though $SPX is registering double-digit gains while moving to new all-time highs. Eventually, this much negative divergence from breadth catches up with the market, but right now a few stocks are all that is needed to carry $SPX and NASDAQ to all-time highs.
The trend of $VIX is still downward, so that is still bullish for stocks. That will be the case as long as both $VIX and its 20-day moving average are trading below the 200-day moving average.
In summary, we remain bullish because there are no confirmed sell signals, and the $SPX chart is strongly in an uptrend. However, given the number of overbought conditions and potential negative divergences, we are staying alert to take bearish positions if and when confirmed sell signals appear.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.