Lawrence G. McMillan reviews the options market in his weekly column for January 5.
The market blasted into the new year with a strong rally that has dominated the first three days of trading. The strength of this move is evident in the fact that on both January 3 and 4, $SPX gapped to new all-time highs. We have mentioned several times in the past how impressive this market has been with upside gaps to new highs over the past year. Thus, the $SPX chart remains bullish.
Equity-only put-call ratios had rolled over to sell signals almost two weeks ago. But now these averages are curling back down again. Technically, both ratios are still on sell signals, but those sell signals are certainly in jeopardy at this time.
Market breadth has improved in the last five days. The breadth oscillators are on buy signals and are moving into overbought territory.
Volatility indices remain at extremely low levels. That is bullish for stocks over the intermediate-term.
In summary, the seasonally bullish period is over, but that doesn't mean the market will decline. There are no confirmed sell signals, except perhaps the equity-only put-call ratios. Meanwhile, the $SPX chart is in a solid uptrend and $VIX is hovering at low levels. That makes for a positive intermediate-term outlook. Even the short-term outlook is decent, in the absence of sell signals. Yes, there are overbought conditions that could develop into problems, but they have not been able to get much traction since the last Presidential election.
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.