The major indicators we track are suggesting that the rally from the January and March lows still has legs. Speed bumps could occur along the way, but we would view any pullbacks as buying opportunities.  Let's take inventory of some of the indicators we have tracked during the past couple of months, specifically the International Securities Exchange (ISE) sentiment index, the CBOE Market Volatility Index (VIX) and various technical levels.  On March 10, I alluded to potentially bullish readings in the International Securities Exchange Sentiment Index. When we highlighted this indicator, the SPX closed at 1,273.37, which means the SPX has rallied roughly 11% in two months. Head into this week, the ISEE 10-day call/put ratio moving average stood at 166 and was rising. The current direction of the ratio is a positive for the bulls, as the negative extremes in pessimism continue to be unwound.  Moreover, when monitoring this indicator, it is also a good idea to have a handle on what could be viewed as short-term euphoria by looking back at important peaks in this ratio, which would indicate heavier-than-normal call buying relative to put buying on the ISE. For perspective, I looked at market peaks during the past year and the corresponding reading for the ISEE 10-day call/put ratio moving average. Lower call/put ratios coincided with each market peak.  The SPX entered this week sitting just below its 160-day moving average, which acted as resistance in late December. A pullback to the 1,390 or 1,400 area might be expected if the market encounters any selling this week.  Now let's turn to the CBOE Market Volatility Index. On April 7, I noted that the CBOE Market Volatility Index (VIX) not only closed below the 25 level and its 80-day moving average, but the index also dropped below its 40-week moving average.  The VIX is still in decline mode, which is a positive for the bulls. For the fifth consecutive Friday, it closed below its 40-week moving average. Remember, this trend line was supportive of volatility pullbacks in 2007, as the VIX was rising during the credit crisis. Quantitatively, the VIX is in a longer-term decline.  As an attendee at the Option Industry Conference in Las Vegas this past weekend, I found it interesting that a panel of three derivatives strategists at major brokerage houses and trading firms expect volatility to increase significantly in the months ahead. While this panel represents only a small sample size of investor opinions, such sentiment within the context of a VIX decline could have bullish implications--especially on the heels of the huge number of bearish magazine covers we highlighted in past commentaries.  And now a few sectors of note:  Homebuilders: Bullish. The SPDR S&P Homebuilders (amex: XHB - news - people ) exchange-traded fund took a bit of a breather from its 17% year-to-date rally last week, as the ETF consolidated into rising support at its 10-week moving average. This intermediate-term trend line completed a bullish cross of its 40-week counterpart last week, a technical indicator that could mean that the XHB has more room to run in its current rally.  Despite this growing technical strength, sentiment remains extremely pessimistic. The financial media continued to pan housing stocks, evident by the wealth of negative magazine covers hitting the Street in recent weeks. Meanwhile, brokerage firms are also dead set against the group, as Zacks' data indicate that nearly 66% of analysts following the housing sector rate it a "hold" or worse. Finally, earnings season will begin to focus on housing concerns this week, with the release of D.R. Horton's (nyse: DHI - news - people ) quarterly report on Tuesday. With expectations already in the basement for the group, a stronger-than-expected report from DHI could go a long way towards boosting the sector.  Energy: Bullish. Last week's consolidation of crude-oil prices weighed on the energy sector a bit, but the uptrend remains intact. The Energy Select Sector SPDR (amex: XLE - news - people ) exchange-traded fund held above key support in the 80-81 region, site of its early January highs. Meanwhile, the trust is still sitting on a 52-week gain of more than 26%, enjoying the steady support of its 10-week and 20-week moving averages.  Despite the sector's strength, analysts have yet to fully buy into the rally. According to Zacks, 47% of the 882 brokerage firms offering up an opinion on the oil sector rate it a "hold" or worse. Meanwhile, options players are betting heavily on a decline in the sector. XLE's Schaeffer's put/call open interest ratio (SOIR) of 3.10 indicates that puts more than triple calls among near-term options. What's more, this ratio ranks above 95% of all those taken during the past year.  Small-Cap Growth: Bearish. The iShares Russell 2000 Growth Fund (amex: IWO - news - people ) was once again capped by overhead resistance at the 78 level last week. This region has provided staunch resistance for the exchange-traded fund since February. For the record, the last time that the IWO tangled with the 78 level, the move was rejected for a loss of nearly 12% to the ETF's bottom in mid-March. Despite the IWO's poor technical performance and looming overhead resistance, investors remain quite bullish toward the trust. The Schaeffer's put/call open interest ratio (SOIR) for IWO has plummeted from an annual high of 7.40 on March 28 to its current perch of 4.46. This decline indicates that investors have added call positions at a faster pace than puts among near-term options. This combination of growing optimism as the ETF faces staunch technical resistance has bearish implications from a contrarian perspective.
As the market prepares to digest home builder earnings, sentiment and chart action both look good for stocks.