Dow 45,000 is the Start of the Stock Market's December Seasonal Gain

The S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) both wrapped up November with record-breaking performances. On Friday, the Dow briefly exceeded the 45,000 threshold during trading but settled slightly below that milestone by the session's end. These achievements underscore the strong momentum in equity markets as they continue to chart new highs.

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When markets hit record levels, there is no predefined resistance above, providing room for further gains. Analysts are closely monitoring the +4σ “modified Bollinger Band” as a potential target. Currently, this indicator stands at 6,130 and is rising. Meanwhile, support remains at 5,870, a level that has held firm for some time. A decisive close below this mark could signal a shift in the market's trajectory and prompt a reconsideration of the prevailing bullish outlook.

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Even if the market were to breach the 5,870 support level, additional support structures remain intact. These include the bullish island reversal pattern still visible on the SPX chart and robust support around 5,670. Previously, a negative island reversal had been a cause for concern, but recent rallies have eliminated this issue by filling the gap and restoring market confidence.

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The McMillan Volatility Band (MVB) buy signal, initiated in early August, remains active. Marked by a green “B” on the SPX chart, this signal aligns with the +4σ Band as its target. This buy signal continues to reinforce the bullish sentiment in the market.

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Equity-only put-call ratios have now reached their lowest levels of the year, reflecting an overbought condition in the market. However, this situation does not constitute a sell signal. For a genuine sell signal to emerge, these ratios would need to spike sharply and surpass their November highs. While some interpret the descending movement of these ratios as a renewed buy signal, their current sideways drift at low levels makes the directional trend unclear.

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Market breadth has improved notably, with breadth oscillators still signaling a buy. Though some unusual trading days have been observed—where the SPX moves in one direction while market breadth flows in another—these instances have little impact on the broader market perspective. As such, market breadth continues to be viewed positively.

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Cumulative volume breadth (CVB) recently set all-time highs on three consecutive days, mirroring similar record-breaking highs in the SPX. This alignment between CVB and SPX serves as a strong confirmation of the market's upward trend.

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On the New York Stock Exchange (NYSE), new highs significantly outpace new lows, sustaining a buy signal that has been in effect since last August. This bullish indicator will remain valid unless new lows outnumber new highs on the NYSE for two consecutive trading days.

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The Cboe Volatility Index (VIX) has declined to near its lowest levels of the year, indicating another overbought condition. However, this is not necessarily a cause for concern unless the VIX begins to rise sharply. The “spike peak” buy signal from November 6 remains intact, and additional indicators suggest bullish trends. The 20-day moving average of the VIX is approaching its 200-day moving average. If the 20-day crosses below the 200-day while the VIX itself remains below the 200-day—an outcome that appears highly likely—a VIX buy signal would be confirmed, reinforcing the bullish sentiment.

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The structure of volatility derivatives also supports a favorable outlook for stocks. Term structures exhibit an upward slope, and VIX futures are trading at a premium to the spot VIX. These conditions typically reflect investor confidence in sustained market gains.

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In conclusion, the market remains in a bullish phase, supported by strong technical indicators and favorable conditions across multiple metrics. As long as the SPX stays above the 5,870 support level, the core bullish position remains intact. Traders are advised to act on newly confirmed signals to capitalize on market opportunities. Additionally, rolling deeply in-the-money call options can help lock in partial profits while mitigating downside risk.

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While caution is always warranted when markets reach new heights, the current environment offers no immediate signs of reversal. As long as these favorable trends persist, the outlook for equities remains optimistic.

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