The stock market is exhibiting signs of renewed strength, with the S&P 500 index enjoying a robust week fueled by positive inflation and interest rate data. This upward surge has pushed the S&P 500 confidently above its 20-day moving average and the previous resistance ceiling at 5,180.
Currently, the only remaining barrier to a new all-time high rests around the 5,260 mark. On the flip side, the S&P 500’s chart reveals two gaps on the downside, which, if filled, could signal a return to a bearish outlook. In particular, if the S&P 500 dips below 5,070, it may give bears the upper hand in the market. For now, however, the potential for further gains remains a powerful force within the market.
One of our analysts believes that the recent rally, with its far-reaching market influences, has the potential to catapult the market to new peaks. If this occurs, the S&P 500 chart will signal a strong bullish trend. Conversely, another analyst notes the possibility that the rally could simply be a strong correction in a continuing bear market rather than the start of a new bullish move.
The McMillan Volatility Band (MVB) buy signal remains active, with a target of approximately 5,275 – just above the current all-time high. However, this trade could become invalid if the S&P 500 closes below the -4<SIGMA> Band, which currently rests around 4,900 and shows signs of upward movement.
An interesting divergence exists within the equity-only put-call ratios. While they initially signaled a sell-off during the initial phases of the rally, they are now beginning to indicate a reversal. One of our analysts interprets the recent downward trend in the standard ratio as a bullish indicator and potential buy signal. A separate view, however, suggests that the computer-generated analysis of these charts does not confidently align with this assessment.
The weighted ratio presents a somewhat conflicting picture. It appears to have peaked, suggesting a buy signal, but our computer models do not fully support this conclusion. Analysts expect clarity in the next day or two to help establish a more reliable outlook on these put-call ratios.
Market breadth has been decidedly robust, with breadth oscillators signaling a buy for the past week and moving into heavily overbought territory. Our analysts point out that when the S&P 500 is rallying, an overbought condition is not necessarily a sign of impending trouble. A more concerning situation would be if the breadth begins to falter. Additionally, the Cumulative Volume Breadth (CVB) hit a new all-time high on May 6th, which often precedes a new record for the S&P 500.
The NYSE indicator of new highs versus new lows has also shifted into buy signal territory. This change occurred after only a brief neutral period; it has been predominantly bullish since last November. The buy signal will remain valid until new lows on the NYSE outpace new highs for a two-day period.
The VIX has experienced a sharp decline over recent trading sessions, erasing the entirety of its April rally and returning to price points last seen in late March. Analysts identified a mid-April “spike peak” buy signal for stocks, which remains active. This signal would only become invalid if the VIX returns to “spiking” mode with a close at minimum 3.0 points higher over a short three-day timeframe.
Finally, the structure of volatility derivatives adds a further layer of bullish sentiment. The term structures of the VIX futures and CBOE volatility indices show upward slopes. However, analysts note that some concerns surfaced during the last selloff, but bullish factors have since regained dominance.
Overall, while numerous bullish drivers are currently at play, the S&P 500 chart won’t demonstrate an unequivocal bullish trend until it registers new highs on two consecutive days. Therefore, our analysts are cautiously maintaining an out-of-the-money bearish position but are actively trading around other more optimistic market signals.
