Lawrence G. McMillan reviews the options market in his weekly column for December 29.
$SPX remains in a strong uptrend, with all averages rising on its chart. It is going to close out the year well above its rising 20-day moving average -- a moving average that it has touched only once in the last four months. You can't find an uptrend much better than that.
The equity-only put-call ratios had been in a more or less steady decline during this last month, as call buying has reached extremes. Now they have begun to rise from those multi-year lows, generating sell signals.
Market breadth hasn't been spectacular, but it has been steadily positive. So both breadth oscillators are back on buy signals. They are only modestly in overbought territory, though, and we would like to see them move more deeply into overbought territory as confirmation of the $SPX new all-time highs.
Volatility indices continue to hover at very low levels, and as we've repeatedly explained, that is a benign state for stocks. Stocks can continue to rise while volatility is low.
In summary, the intermediate-term outlook remains bullish. But now that the bullish seasonality is about to end, and traders have booked the gains for the year, does that mean that a correction is more probable? Well, it certainly couldn't be any less probable, but we still need to see some support broken in $SPX to even think about a correction.
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.