Signs of a market top are everywhere — and investors are ignoring them for now The U.S. stock market, as measured by the S&P 500 index SPX, registered new all-time highs last week but has pulled back slowly this week so far. As of last Friday, the index had made a new all-time high on 13 of the previous 25 trading days. That’s impressive.

The S&P 500 probably deserves a rest, and a pullback to 4,983 would fill the gap on its chart (circled on the accompanying SPX chart). That would be healthy. Below there, short-term support exists at 4,950; 4,920; and 4,850 — all recent weekly lows. There is stronger support at 4,800, which had been the all-time high for almost two years and which was a short-term resistance area this past December and January.

The S&P 500 has not risen above the +4σ “modified Bollinger Band,” which means that the “classic” sell signal is still in place. We do not trade the “classic” signals because of their frequent whipsaws. Rather we wait for a confirmed McMillan Volatility Band sell signal, which would only be fulfilled if the index were to fall to 4,903. That seems highly unlikely in the short term, so for all practical purposes, this signal needs to “reset.”  That can only happen if the index closes above the +4σ Band, which is currently at 5,180 and rising.

Equity-only put-call ratios have drifted back down to near-recent lows. While it is technically true that the computer programs we use to analyze these charts had declared that the ratios were ready to roll over to sell signals, that has not happened. They would be on sell signals if they were to rise strongly from these levels — much like what happened at the beginning of August last year. (See the accompanying put-call-ratio charts.) So these ratios are in an overbought state at the current time, but they are not on sell signals — and won’t be until they begin to rise.

“New highs on the NYSE have continued to completely dominate new lows.”

Breadth has been just strong enough to avoid a sell signal. We track two versions of breadth: the New York Stock Exchange and “stocks only,” where “stocks only” refers to all optionable stocks — more than 6,000 currently. “Stocks only” breadth has been stronger for the past few days, and that is a positive sign. Still, it wouldn’t take much in the way of negative breadth to roll these oscillators over to sell signals.

New highs on the NYSE have continued to completely dominate new lows. Thus, this indicator continues to remain strongly on a buy signal.

The Cboe Volatility Index VIX had spiked a couple of weeks ago but is down to benign levels again. Thus, the “spike peak” buy signal remains in effect. It lasts for 22 trading days or until VIX closes above its previous peak, near 18. In addition, VIX has dropped back below its 200-day moving average and remained there for a week, so the trend of VIX is now downward again and that, too, is bullish for stocks. 

As the accompanying VIX chart shows, the 20-day moving average continues to slowly rise. If both VIX and the 20-day MA cross above the 200-day MA, that would be a sell signal. I wouldn’t say it’s imminent, but it is possible in the near term.

The construct of volatility derivatives continues to paint a bullish picture for stocks. The term structures are sloping upward, and the VIX futures are trading at a strong premium to VIX. 

In summary, we are maintaining our “core” bullish position because of the positive nature of the S&P 500 and the lack of confirmed sell signals from our indicators. If other confirmed signals should appear, we will trade them around the “core” position.