Stock Market Bulls Are Charging With Surprising Strength and Speed

The S&P 500 index (SPX) in the U.S. stock market achieved fresh all-time intraday and closing highs on separate days throughout the previous week. On Friday, following a reversal from an all-time intraday high, some observers speculated that the market had reached its peak. However, this week, the S&P 500 surged to another all-time high as investors reassessed the U.S. consumer-price index data, deeming it not as concerning as initially feared.

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While market internals generally remain robust, there are emerging signs of weakness in certain areas. The S&P 500 chart indicates support levels at 5,050 (the late February and early March lows), followed by 4,983 (the lower boundary of a notable gap illustrated in the accompanying SPX chart), and then at 4,920. Although there are additional support levels below these, a retreat below 4,800 for the S&P 500 would signify a significant bearish signal.

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Despite the ongoing rally, the S&P 500 has yet to reach its 4σ modified Bollinger band (mBB), indicating a possibility of a McMillan volatility band (MVB) sell signal if the index were to decline to 4,903.

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Interestingly, equity-only put-call ratios have increased in the past week, despite the S&P 500 reaching new highs. Although this has generated tentative sell signals for stocks, they are not yet fully validated. It would lend more credibility to these signals if the ratios were to substantially rise, akin to what occurred in August 2023. For now, this stands as the closest approximation to a confirmed sell signal among the indicators.

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Breadth indicators have remained sufficiently positive to maintain buy signals, although a few days of negative breadth could potentially trigger sell signals. Furthermore, cumulative volume breadth has exhibited strength, with new all-time highs recorded over the past five consecutive days. Despite some days seeing more declining issues than advancing ones, advancing issues have outweighed declining ones in terms of volume.

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The number of new highs on the NYSE has been robust, significantly surpassing the count of new lows, thus maintaining a strongly bullish stance. However, the buy signal would be nullified if new lows outnumber new highs for two consecutive days.

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The CBOE Volatility Index (VIX) has declined to the 14 level after a slight rise before the CPI report. Although the "spike peak" buy signal remains in effect, it is nearing its expiry, following a trading system that dictates exiting the trade after 22 trading days. Meanwhile, the VIX trend remains uncertain, given its recent fluctuations above and below its 200-day moving average.

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In terms of volatility derivatives, the construct remains bullish for stocks, characterized by upward-sloping term structures and VIX futures trading at a substantial premium to the VIX.

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In summary, the core bullish position is maintained, with calls being rolled up to higher strikes when deeply in-the-money. While some new sell signals are conceivable, none have been unequivocally confirmed yet.

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Regarding previous recommendations, several conditional recommendations remain open, with updates provided for those that have been filled. These recommendations will continue to be monitored, and any further developments will be addressed in future reports.

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