After a quick three-day pullback including a gap opening lower last Monday as the S&P 500 briefly exceed the 50-day Moving Average before closing higher, buy the dippers ended the decline on Tuesday by pushing the S&P 500 Index back up above the previous Friday's close. The Market Review explains with more details. 

S&P 500 Index (SPX) 4411.79 advanced 84.63 points or +1.96 % last week making a new closing high Friday as well a new intraday high at 4415.18. After last Monday's gap opening lower ahead of earnings reporting, that really gets going this week, odds were better than 50/50 the decline would be limited as buy the dippers get busy holding the decline to less than 5%. Indeed they did the next day, on-turn around Tuesday, since the 50-Moving Average stopped the previous six pullbacks as this Bespoke chart as of the close last Monday shows.

Now after making new highs, connecting the March 4 low at 3723.34 to the July 19 low at 4222.13 creates a new operative upward sloping trendline, USTL, that's equal to the 50-day Moving Average at 4256.80.

Invesco QQQ Trust (QQQ) 368.20 gained 10.60 points or +2.96% last week breaking out to new closing and intraday highs on Friday. With the new high, a new operative upward sloping trendline, USTL starts at the May 18 low of 316.20 and connects with the July 19 low of 352.04 at an ideal 30-degree slope and well above the 50-day Moving Average at 344.72. In the event of an unexpected pullback, both will likely provide support, first the USTL then the 50-day Moving Average. The bulls should be delighted.

CBOE Volatility Index® (VIX) dropped 1.25 points or -6.78% last week ending at 17.20. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, slid 2.00 points or -14.38% to close at 11.91% after spiking up to the range mean at 17% last Monday, as shown on this six-month chart.

VIX Futures Premium

VIX futures premium ended Friday at 22.01%, with August futures replacing July futures that expired last Wednesday. Now back into the green bull zone.

Since most of the volume and open interest are in the two closest futures contracts measuring the volume-weighted premium relative to the standard 30-day VIX provides a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. The chart reflects the distance from the VIX to the futures curve computed from the two front-month contracts.

Market Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications, again continued lower every day last week declining 203.71 points or -56.02% declining rapidly below the 50-day Moving Average at 657.62. Since peaking on June 15 at 862.90, it continues lower and now approaches the November 2 low at 58.71 that coincided with an SPX pullback low.

While positive divergences tend to support further SPX advances, the current negative divergence seems to have little influence on the advancing SPX, at least so far.

The alternate breadth measure based on the percentage of S&P 500 Index stocks above their 50-day Moving Average ended the week at 54.51% up from 36.67% last Monday reflecting concentration in fewer large capitalized stocks.

Strategy

In bull markets, a good strategy is to stay long equities and/or ETFs and then tactically hedge pullbacks as they begin developing since ordinary pullbacks can become corrections when something unexpected happens. Then corrections can become downturns when something else unexpected happens, and downturns can become bear markets when many unexpected things change medium and long-term fundamentals.

This week Covid-19 worries along with the yield on the U.S. 10-year Treasury Note  are likely to take a back seat to earnings announcements from most all of the widely followed popular big cap growth companies that will report earnings this week including Tesla (TSLA) on Monday after the close  with slightly declining options implied volatility and Pinterest (PINS) on Thursday after the close with rising options implied volatility, two stocks on our Volatility Kings™ list in Digest Issue 29 "Volatility Kings Second Quarter 2021."

After the major indices advanced going into earnings reporting this week remember the tendency to "buy the rumor sell the news" for stocks advancing quickly before reporting.

Summary

Both the S&P 500 Index and Invesco QQQ Trust made new closing and new intraday highs last week after recovering from quick pullbacks on Monday. With the exception of continuing market breadth deterioration, the indicators, including new upward sloping trendlines, look bullish again. With 2Q earnings reporting by the widely followed big cap stocks, watch out for selling on better than expected news.