$SPX remains in a bullish trend, despite breaking one support level this week -- a level which it quickly recovered. There is support at 2557 (Wednesday's low, from which prices have rallied over 30 points in a day). Below that, there is support at 2545 (the October lows), and then the major support at 2510 -- the September highs, and the area which launched the current leg of this long market rally.
As noted on page 1, a divergence has developed between $SPX (and the other major indices) – which have all been making new all-time highs – and the Russell 2000 ($RUT, IWM), which has not and has even broken down.
This has been a successful seasonal trade in many years, and the last two years were the second and third best years in our history. We have used this in 23 of the past 24 years – skipping only 1995, for reasons which I no longer recall.
In this trade, we buy RBOB Gasoline futures and sell Heating Oil futures. This is the simplest way to establish the spread, eschewing futures options and ETF options – the options are just too illiquid in the February contracts, which is what we use for this spread.
A few of our subscribers have been rather nervous about the fact that the mBB sell signal has not produced immediate results. The sell signal occurred on October 25th, with $SPX roughly at 2557. Even though $SPX has rallied about 1% since then, it has not come close to stopping us out – an action which would require $SPX closing above the +4σ Band. Since that Band has raced away to the upside, we have a trade that is sort of in suspended animation if you will. We bought puts to enter the trade, so one knows exactly what his maximum dollar loss could be. However, we are still of the opinion that this market is tiring out and the sell signal still has a good chance to work.
Stock prices continue to rise, in general. There does seem to be a slowing of the upward momentum, but considering how overbought the market had gotten, much more was expected of the bears.
The $SPX chart remains bullish, in that it is rising, and all of its trend lines are rising as well. The index has still not closed below its rising 20-day moving average since early September -- a period of nearly two months.
The $SPX chart in Figure 1 is still a bullish chart. The moving averages are all trending higher. There is support at 2544 (this week's intraday reversal low), with more important support at 2510 and 2480. A close below 2510 would be somewhat bearish, and a close below 2480 would change the chart to an outright bearish one, in my opinion. But at current levels, there is room for a modest correction without completely rolling over into a bear market.
The S&P 500 Index ($SPX) has now made a new all-time closing or intraday high on 15 of the last 17 trading days. When the bears fail to capitalize on a selling opportunity such as Thursday, the bulls come back with a vengeance. The $SPX chart remains positive, with support at 2510.
Equity-only put-call ratios have turned bullish once again. Both of these ratios have begun to decline again, and when put-call ratios are declining, that is bullish for stocks.
The major indices pushed to new all-time highs again this week, although at a snail's pace. The $SPX chart is in a strong uptrend, and that is simply bullish. In the traditional sense, there is support at 2510, 2480, and 2400.
The equity-only put-call ratios have both rolled over to sell signals. These sell signals are confirmed by the computer programs that we use to analyze these charts, as well as by the naked eye (well, sort of).
The strength of the market was on full display this week. The indicators are still in bullish agreement with this move, but there are a couple of potential overbought sell signals setting up.
One overbought condition is that $SPX is above the "modified Bollinger Bands" shown in Figure 1. There is support at 2510, 2480, and 2400.
