The S&P 500 index (SPX) in the U.S. stock market attained fresh all-time highs in both intraday and closing figures over distinct days in the preceding week. Last week, after a reversal from an all-time intraday pinnacle, some analysts speculated that the market had reached its apex.
Nevertheless, this week saw the S&P 500 surging to yet another record high as investors reevaluated the U.S. consumer-price index data, judging it to be less worrisome than initially anticipated.
Despite generally robust market internals, there are emerging indications of fragility in specific sectors. The S&P 500 chart reveals support levels at 5,050 (reflecting the late February and early March lows), trailed by 4,983 (the lower limit of a notable gap depicted in the accompanying SPX chart), and then at 4,920.
Although there exist additional support tiers beneath these, a descent below 4,800 for the S&P 500 would denote a significant bearish indicator.
Despite the ongoing market rally, the S&P 500 has yet to breach its 4σ modified Bollinger band (mBB), suggesting the potential for a McMillan volatility band (MVB) sell signal if the index were to dip to 4,903.
Interestingly, equity-only put-call ratios have risen over the past week, even as the S&P 500 notched new highs. While this has triggered tentative sell signals for stocks, they remain unconfirmed.
These signals would gain more credence if the ratios were to see a significant increase, similar to what occurred in August 2023. Presently, this represents the closest approximation to a confirmed sell signal among the various indicators.
Breadth indicators have thus far stayed positive enough to sustain buy signals, though a few days of negative breadth could potentially trigger sell signals.
Additionally, cumulative volume breadth has shown resilience, with new all-time highs registered over the past five consecutive days. Despite some days witnessing more declining issues than advancing ones, advancing issues have dominated declining ones in terms of volume.
The number of new highs on the NYSE has demonstrated strength, significantly outpacing the count of new lows, thus maintaining a firmly bullish stance. Nonetheless, the buy signal would be invalidated if new lows were to exceed new highs for two consecutive days.
The CBOE Volatility Index (VIX) has retreated to the 14 level following a minor uptick before the CPI report. While the “spike peak” buy signal remains active, it approaches its expiration, adhering to a trading system that dictates exiting the trade after 22 trading days.
Meanwhile, the VIX trend remains uncertain, given its recent oscillations above and below its 200-day moving average.
In the realm of volatility derivatives, the landscape continues to favor stocks, marked by upward-sloping term structures and VIX futures trading at a notable premium to the VIX.
To sum up, the fundamental bullish stance persists, with calls being adjusted to higher strikes when deeply in the money. While the possibility of new sell signals exists, none have been definitively confirmed as of now.
As for past recommendations, several conditional suggestions remain active, with updates offered for those that have been executed. These recommendations will be under ongoing observation, and any further progress will be detailed in forthcoming reports.
