Lawrence G. McMillan reviews the options market in his weekly column for September 25.
$SPX had made either new intraday all-time highs or closing all-time highs for eight consecutive trading days until yesterday, September 21, when it did not. The chart remains bullish, with major support at 2480.
Equity-only put-call ratios remain on buy signals. There is a slight wiggle in the standard chart, but the computer analysis laughs that off. Both of these ratios are declining rapidly, as call buying has been dominant since the September 11 breakout by $SPX.
Market breadth has remained positive, with both breadth oscillators on buy signals. However, these oscillators never really registered the kind of strong overbought reading that we've seen accompany new all-time highs by $SPX in the past.
This brings us to volatility. Volatility is low and getting lower, even though there was some selling in the market over the past two days, once the FOMC announcement was out of the way on Wednesday. We continue to view the 13 level for $VIX as something of a demarcation line between bullish and bearish; as long as $VIX continues to close below 13, stocks can continue to rise.
In summary, the major indicators are all on buy signals. Hence we are intermediate-term bullish. However, there are some sell signals beginning to appear that warn of a short-term correction. That should not affect the intermediate-term picture, though.
Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, and publishes several option trading newsletters.