The oversold rally that began with a furor in late May appears to have run its course. $SPX traded in a 100-point range for seven days, before finally breaking down yesterday (June 9th). The red box in Figure 1 denotes that tight trading range. It now seems likely that $SPX will test the May lows, in the 3800-3900 range. A violation of that area would then see a new leg of the bear market beginning.
The trend of $SPX is negative (blue lines on the chart in Figure 1), and just last week saw a new lower low to go along with the repeating pattern of lower highs and lower lows. The trend will be negative until that is reversed.
Last Friday, May 20th, $SPX sold off nearly 100 points intraday but then recovered nearly all of it by the close. That was a new lower low, keeping the downtrend intact on the $SPX chart. But it was also an exacerbation of extremely oversold conditions, and the market has rebounded since then. The bottom line is that while the intermediate- and longer-term are still negative because of the trend of $SPX, the short-term is positive because of new, confirmed buy signals that have taken place. It could carry to 4150 on $SPX, and perhaps as high as 4300.
The stock market continues to decline, reaching new relative lows again this week. The downtrend on the $SPX chart is still in place. For this reason, we are maintaining our "core" bearish position. However, oversold conditions are building, and there will certainly be at least an oversold rally, which will be tradeable.
Stocks continued to fall this week, after the last failed "one-day wonder" rally on May 4th. Support was broken at 4100, which quickly saw $SPX trade down below 3900. There is some support at that level, but there is a more well-defined support level at 3700 (the lows of February and March, 2021). Needless to say, the chart of $SPX remains in a downtrend (blue lines in Figure 1).
Realized volatility is exploding as the market swings wildly from one direction to the other. Both last week (April 28th) and this week (May 4th) saw extremely large oversold rallies that rivaled some of the largest "up days" in history. Both were immediately followed the next day by selling of a major magnitude, that more than wiped out those rallies -- and were some of the largest "down days" in history.
The $SPX chart remains in a downtrend. Note the blue trend lines on the chart in Figure 1. Within that downtrend, action has been getting more and more volatile, which is much more typical of a bear market than a bull market. This past week, $SPX once again tested the support in the 4100 4200 area, and so far it has held.
Stocks have had trouble making a sustained move of late. In Figure 1, the major trend of $SPX is down (blue lines). However, within those trend lines, $SPX has been tightly range-bound between 4380 and 4500 for the past week. In more "normal" times, a 120-point range for $SPX over a week would be a lot of movement, but not in today's market.
$SPX has pulled back from its late-March rally, and in doing so raised the possibility that the bear market is still in force, but the jury is still out on that. The intermediate-term trend still appears to be down (blue lines on the accompanying chart). Shorter-term activity, however, shows a more positive bias in that the "modified Bollinger Bands" (mBB) are now moving higher. Realized volatility has begun to shrink modestly, and the Bands are pulling closer together.
A week ago, it appeared that $SPX had a chance to challenge its old highs. But subsequently selling has dashed those hopes at least temporarily, and now the question is whether support near 4420 will hold. A move above 4637 (last week's highs) would justify a bullish stance, while a move below 4420 would justify a bearish stance.
