McMillan

Stock Market
The stock market continues to work its way higher, albeit at a maddeningly slow pace. Our technical indicators remain bullish, though, so we continue to go with the bullish flow. The charts of the major indices have all improved, and that is good. $SPX, $DJX (the Dow), and $OEX (barely) have all made new highs for this move and are thus trading at their highest prices since March. We continue to feel that they will assault the yearly highs soon.

Equity-only put-call ratios have continued to remain strongly on buy signals. Yet, they really aren't overbought. You can see from Figures 2 and 3 that the ratios have room to move lower before encountering the bottom of the chart -- at which point one might judge them overbought. But at their current levels, they are just fine -- and bullish.

During this past week, especially, breadth has been very positive. To a large extent, it's reflective of the strength in the small-cap indices, such as Value Line ($VLE).which is already approaching its yearly highs. When the small cap indices do well, breadth is always expansive (i.e., advances lead declines by a wide margin), since there are so many stocks in these small-cap indices.

Finally, volatility has continued to decline. $VXO, the index that measures the implied volatility of $OEX options, closed at its lowest level since December, 1995 -- nine and half years ago. $VIX wasn't far behind, as the next day (today), it too closed at a 9-1/2 year low. As long as $VIX languishes at these low levels, it's supportive of the bullish case. We would become concerned if $VIX rose more than 3 points from these levels -- which would be slightly above 14. But with the way the market is acting, it appears that volatility is on track to make a low sometime in early July -- in line with its historic seasonal low. Hence the market should be able to continue rising during that time, at least. Overall, we have no sell signals from our indicators and thus we remain bullish.

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