The market continues the rally that began in early October. Yes, there have been some severe down days mixed in, but $SPX has generally been overcoming one resistance level after another and closing gaps left on the way down (most recently, the island reversal gaps from early September have been filled). This morning's strong job report has knocked the market down 50+ $SPX points, but that is not necessarily a rally killer. The most recent breakout above resistance at 4030 led $SPX to reach not only the downtrending 200-day Moving Average, but the downtrend line for this bear market. Both are near 4100. A strong move above 4100 would break that downtrend line, but it would not necessarily be the end of the bear market. The next resistance level above that is the August highs at 4325.
Equity-only put-call ratios are not exactly confirming this rally. Both ratios (Figures 2 and 3) have crept higher over the past week or so, and that could potentially turn into a sell signal. At the current time, the computer analysis programs continue to rate these ratios as being on buy signals, but the fact is that they need to break below their November lows in order to visibly confirm that they remain on buy signals.
Breadth has been strong of late, after flip-flopping back and forth as the market worked sideways for a couple of weeks. Except for one day, breadth has been quite positive, with November 30th being another "90% up day." Thus, the breadth oscillators are on buy signals at this time.
$VIX continues to decline, for the most part, and a declining $VIX is bullish for stocks. Specifically, the trend of $VIX buy signal is solidly in place and will remain that way as long as $VIX continues to close below its 200-day Moving Average.
Another factor at this time of the year is the bullish seasonality between Thanksgiving and the first of the new year.
In summary, we are still holding onto an out-of-the-money "core" bearish position, because the downtrend line on the $SPX chart is intact. In addition, we are trading various signals from our other indicators around that and will continue to do so.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.