The superlatives that are being used to describe this market are well-deserved. $SPX has advanced so fast that there really isn't any support, unless you want to declare the low of the "half-day" correction at 2825 a minor support area. The one clearly defined support area is the 2680-2700 area that was formed in late December and from which this January rally was launched.
Stocks continue to advance at a rapid rate. Despite one half day of correction (down 40 points from high to low on Tuesday), $SPX has closed at new all-time highs on three of the last five days. There is now minor support at 2770 -- the low of the half-day correction that took place.
Last week, there was an article in the Wall Street Journal, saying that investors who have been buying protection are going to stop doing so, because of the losses incurred from buying the protection. That line of thinking was thankfully countered in this week’s Striking Price column in Barron’s, where it was pointed out that many large investors want protection as insurance in case something unforeseen occurs. I wrote an article yesterday for Moneyshow, and had this comment on the situation:
The chart of $SPX could not be more bullish. It is in a strong uptrend, well above all of its meaningful trailing moving averages, and continually making new all-time highs. Other indices are in similar shape, as far as making new all-time highs, but $SPX has the strongest chart of them all, going back to the election in November 2016. That's when this monster rally was launched, and it's still in full force.
The CBOE has launched a microsite within the CBOE website that has information about all of the volatility-based Exchange Traded Products (ETPs). The website is located at http://www.cboe.com/voletps.
VXX and XIV are two of the most liquid and popular ETPs (both are Exchange-Traded Notes), but there are many others.
The post-Thanksgiving seasonally bullish period ended at the close of trading on January 3rd. This period is a combination of three different seasonal patterns, which began at the close of trading on November 22nd (post-Thanksgiving, January effect, and Santa Claus rally). $SPX advanced 116 points, or 4.5% over that time period. One component of our research indicates that it is usually best to be in the small-caps during this period. However, this year the Russell 2000 ($RUT) only advanced 36 points, or 2.4%. IWM advanced by 3.56 points, also 2.4%. So this year it would have been better to be in $SPX all the way along, rather than in the Russell.
The market blasted into the new year with a strong rally that has dominated the first three days of trading. The strength of this move is evident in the fact that on both January 3rd and 4th, $SPX gapped to new all-time highs. We have mentioned several times in the past how impressive this market has been with upside gaps to new highs over the past year. Thus, the $SPX chart remains bullish.
$SPX remains in a strong uptrend, with all averages rising on its chart. It is going to close out the year well above its rising 20-day moving average -- a moving average that it has touched only once in the last four months. You can't find an uptrend much better than that.
The equity-only put-call ratios had been in a more or less steady decline during this last month, as call buying has reached extremes. Now they have begun to rise from those multi-year lows, generating sell signals.
The stock market euphorically gapped to new all-time highs on Monday, after the Tax Bill had been passed over the weekend. Pessimists might say that a gap to a new all-time high, on "the news," is a selling opportunity. They might be right, but it's really to soon to tell. One would have to see $SPX break some support areas before that could be confirmed. The bottom line is that the intermediate- term trend of $SPX is still up.
