The stock market, as measured by the S&P 500 Index
has rallied to the top of its downtrend. On the accompanying SPX chart, one can see the red lines defining the lower highs and lower lows that make up the downtrend in SPX. SPX has rallied to nearly the upper red line, which is now at about 4400. A breakout above there would be positive. Furthermore, the circle on the chart shows the gap that was left in September. If that gap is closed, it would be another positive for SPX. The gap would be filled if SPX trades at 4401.60 or higher.
Finally, there is resistance in the current area from the October highs. So, all three of these are obstacles for the market. If SPX can break out over 4400, it would have overcome all of these obstacles, and that would be very bullish for stocks. However, if SPX turns lower again, it will likely trade to at least 4200 and perhaps below that fairly quickly.
The McMillan Volatility Band (MVB) buy signal (green “B” on the SPX chart) is still in place. Its target is the +4σ Band, which is currently at 4445 and moving sideways. Equity-only put-call ratios continue to be split. The standard ratio is on a buy signal, but the weighted ratio, despite having rolled over a bit this week, is still rated as being on a sell signal by the computer programs we use to analyze these charts. You might think that we should just go ahead and call the weighted ratio a “buy” since it peaked a few days ago. However, look at the accompanying weighted ratio’s chart, where there are two green circles. The last time this chart behaved in a similar manner was just a couple of months ago, and eventually the sell signal was forcefully reinstated as the weighted ratio rose and the stock market fell sharply. At that time, the computer analysis also suggested that a buy signal was not yet in place, just as it’s doing now. So, we will wait for the confirmed signal before saying that the weighted ratio has rolled over to a buy signal.