Last week here I laid out the case for the bulls, again (seems crazy to me too). I also talked about the possibility of a performance chase into the quarters end. In other words, I made it pretty clear that as long as SPX remained above 2022 to be a buyer.
The bulls indeed still have the reign. At this point no one would be surprised if there was a pullback or consolidation period; however, as of now and what I will show below is there has been no foul play to the intermediate bullish case. Thus, the odds favor that the S&P 500 will indeed go higher and any near term pullbacks will be bought. This is also true given earnings season begins in a few weeks. With that said, on a shorter time frame there are a few signs that may be signaling a pause. Given the low volatility (VIX) environment and that SPX is now at levels that represent the bulk of where 2015 traded, any further upside will likely be slow and choppy.
Breadth
SPX stocks at 20-day highs: As I mentioned last week, oversold levels that are quickly relieved support the bullish case. As you can see below, since the February lows anytime 20-day highs falls near 5% it is quickly reversed. There is however a second story to the chart below. On Friday SPX made a 20-day high, but stocks making 20-day highs did not. This does not mean stocks won’t soon catch up or that there will be an immediate market drop, it is simply something to take note of as it is a signal of a probable slow down. 
SPX stocks at 20-day lows: This has remained subdued the entire rally. Once this begins to show spikes they tend to come more frequently and higher each time. It might even be at the very start of that process now. Any further spikes higher is likely a signal that the rally is petering out. Keep in mind that the market typically continues higher for a few weeks even when this measure begins to show higher highs and higher lows. 
SPX stocks at 52-week highs: On a more intermediate time frame there is no foul play here to the bullish case. 52-week highs are keeping up with price and are now at levels not seen since March of last year and near where the year long period of sideways action began.
SPX stocks above their 50-day MA: Again on an intermediate time frame this has continually supported the bullish case as it has moved higher with the overall market. In fact, over the last five years there hasn’t been any other time that this meausre has remained above 90% for as long as it has during this stretch. 
Very long term implications: Most of you are like me and trade on a much shorter time frame than a monthly chart, but I thought it was interesting that since 2002 90% of S&P 500 stocks remaining above their 50-day MA hasn’t happened very often. Each time it has, it led to years of further gains and only twice (green lines) had a multi month pull-back first. This is not to say that the market is setting up for a multi-year run because yes, I am aware that central bank intervention since 2009 has been unprecedented. However, it definitely makes it difficult to rule out given the evidence. Seeing stocks above their 200-day MA (second box) continue to rise would give that idea more credence. 
Furthermore, according to @jfahmy
“In the past 2 months, the number of S&P 500 stocks above their 50-day moving average went from less than 10% to above 90%. This has only happened 3 other times since 1990 and the results after this occurs are very strong. 6 months later, the S&P 500 was up 17% on average and 12 months later, the index was up +24% on average.” You can read his entire post here.
But let’s now get back to the short term!
Index only put/call ratio (20-day MA): The put to call ratio’s 20-day MA is getting near lows that are consistent with a stalling period. Note that it typically leads to further gains, but fairly muted ones. Based on index indicators data, over the last five years the average five day return is 0.32%. 
SPY open Interest: As of now, the nearest highest call strike is 207 and 204 for the puts (the highest puts all the way at 200). Price closed at 206.92 on Friday and thus may struggle to get over 207 or fail to remain over it if it does. With the bulls having the edge, any pullbacks into support are likely buyable opportunities, especially near the 204 level which coincides with Friday’s low. If SPY does fall below 204 and fails to quickly recover, then on a short term time frame, a larger pull back to 202 or 200 becomes more probable. Should price be able to exceed 207 and remain above it then the next place of resistance is near 209 and 210, but given the likelihood of muted returns next week it’s best not to overstay your welcome. 
In sum, the bulls clearly have the ball in their court, but any further gains next week will likely be muted and contained near SPY 209/210. As long as price remains above 204, dips into support are buyable. Below 204 opens the door for more damage and for bears to regain short term control.
Given the likelihood of a slow and/or rangebound S&P 500 next week, the best short term strategy would be to concentrate on individual stocks to generate alpha.
For more thorough analysis come join SassyOptions. Members receive two thorough posts each weekend along with intra-day analysis and real time trade alerts during the week. Last week we had a total of seven fully opened and closed trades. Two losses and five wins (95%, 97%, 150%, 340% & 466% – all taking into account scaling out). For a sample of last weeks weekend posts see Open Interest for Expiration 4/1/16 and Set-ups and Game plan for 3/28/16 which I have unlocked.
A Calm Week Ahead
Last week here I laid out the case for the bulls, again (seems crazy to me too). I also talked about the possibility of a performance chase into the quarters end. In other words, I made it pretty clear that as long as SPX remained above 2022 to be a buyer.
The bulls indeed still have the reign. At this point no one would be surprised if there was a pullback or consolidation period; however, as of now and what I will show below is there has been no foul play to the intermediate bullish case. Thus, the odds favor that the S&P 500 will indeed go higher and any near term pullbacks will be bought. This is also true given earnings season begins in a few weeks. With that said, on a shorter time frame there are a few signs that may be signaling a pause. Given the low volatility (VIX) environment and that SPX is now at levels that represent the bulk of where 2015 traded, any further upside will likely be slow and choppy.
Breadth
SPX stocks at 20-day highs: As I mentioned last week, oversold levels that are quickly relieved support the bullish case. As you can see below, since the February lows anytime 20-day highs falls near 5% it is quickly reversed. There is however a second story to the chart below. On Friday SPX made a 20-day high, but stocks making 20-day highs did not. This does not mean stocks won’t soon catch up or that there will be an immediate market drop, it is simply something to take note of as it is a signal of a probable slow down.
SPX stocks at 20-day lows: This has remained subdued the entire rally. Once this begins to show spikes they tend to come more frequently and higher each time. It might even be at the very start of that process now. Any further spikes higher is likely a signal that the rally is petering out. Keep in mind that the market typically continues higher for a few weeks even when this measure begins to show higher highs and higher lows. 
SPX stocks at 52-week highs: On a more intermediate time frame there is no foul play here to the bullish case. 52-week highs are keeping up with price and are now at levels not seen since March of last year and near where the year long period of sideways action began.
SPX stocks above their 50-day MA: Again on an intermediate time frame this has continually supported the bullish case as it has moved higher with the overall market. In fact, over the last five years there hasn’t been any other time that this meausre has remained above 90% for as long as it has during this stretch.
Very long term implications: Most of you are like me and trade on a much shorter time frame than a monthly chart, but I thought it was interesting that since 2002 90% of S&P 500 stocks remaining above their 50-day MA hasn’t happened very often. Each time it has, it led to years of further gains and only twice (green lines) had a multi month pull-back first. This is not to say that the market is setting up for a multi-year run because yes, I am aware that central bank intervention since 2009 has been unprecedented. However, it definitely makes it difficult to rule out given the evidence. Seeing stocks above their 200-day MA (second box) continue to rise would give that idea more credence.
Furthermore, according to @jfahmy
“In the past 2 months, the number of S&P 500 stocks above their 50-day moving average went from less than 10% to above 90%. This has only happened 3 other times since 1990 and the results after this occurs are very strong. 6 months later, the S&P 500 was up 17% on average and 12 months later, the index was up +24% on average.” You can read his entire post here.
But let’s now get back to the short term!
Index only put/call ratio (20-day MA): The put to call ratio’s 20-day MA is getting near lows that are consistent with a stalling period. Note that it typically leads to further gains, but fairly muted ones. Based on index indicators data, over the last five years the average five day return is 0.32%.
SPY open Interest: As of now, the nearest highest call strike is 207 and 204 for the puts (the highest puts all the way at 200). Price closed at 206.92 on Friday and thus may struggle to get over 207 or fail to remain over it if it does. With the bulls having the edge, any pullbacks into support are likely buyable opportunities, especially near the 204 level which coincides with Friday’s low. If SPY does fall below 204 and fails to quickly recover, then on a short term time frame, a larger pull back to 202 or 200 becomes more probable. Should price be able to exceed 207 and remain above it then the next place of resistance is near 209 and 210, but given the likelihood of muted returns next week it’s best not to overstay your welcome.
In sum, the bulls clearly have the ball in their court, but any further gains next week will likely be muted and contained near SPY 209/210. As long as price remains above 204, dips into support are buyable. Below 204 opens the door for more damage and for bears to regain short term control.
Given the likelihood of a slow and/or rangebound S&P 500 next week, the best short term strategy would be to concentrate on individual stocks to generate alpha.
For more thorough analysis come join SassyOptions. Members receive two thorough posts each weekend along with intra-day analysis and real time trade alerts during the week. Last week we had a total of seven fully opened and closed trades. Two losses and five wins (95%, 97%, 150%, 340% & 466% – all taking into account scaling out). For a sample of last weeks weekend posts see Open Interest for Expiration 4/1/16 and Set-ups and Game plan for 3/28/16 which I have unlocked.
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