The baton is poised to be passed back to the bulls. The one thing that stands between the bulls and a probable test of the January highs is resistance in the 1110 area.
There is resistance at 1130-1150 and support at 1060-1080. Both were strong levels, and so $SPX may spend some time in the trading range between those two levels.
Equity-only put-call ratios rolled over to buy signals this week. You can see that both ratios (Figures 2 and 3) were moving steadily higher for about a month, but now have rolled over and begun to trend downward.
Market breadth was extremely overbought about a week ago, and that led to the stall in the rally and some down days this week. This week's negative action has served to alleviate those overbought conditions without actually degenerating into sell signals.
The trend of volatility has resumed a downward direction. The previous uptrend in $VIX was broken this week, and the chart ion Figure 4 shows that the current trend is now down. That is bullish for stocks.
In summary, then, if $SPX ascends above the 1110 level, that should be short-term bullish.
Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, recognized as essential resources for any serious option trader's library.
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