The stock market has finally succumbed to months of negative internals, and now the large-cap indices are following the "troops" lower. $SPX has broken down below the bottom of the trading range, violating support at 4500. Not only that, but it has closed below the December lows, which is another longer-term negative for the market.
This decline has exacerbated oversold conditions in many areas, though, so expect violent oversold rallies within what is now a bearish downtrend.
The $SPX Index fell back below 4700 and has been struggling ever since. It has returned to its former trading range (4500 - 4700). A close below 4500 would also be a close below December's lows - often the hallmark of the beginning of a bear market. Meanwhile, a move above 4800 would return everything to a "bullish" status.
Equity-only put-call ratios are not on the same page surprisingly. The weighted ratio is rising, and so it is on a sell signal. The standard ratio is on a buy signal.
The fact that $SPX and the Dow ($DJX) are out-performing just about everything in the universe is well-known, but there doesn't seem to be any letup in the wide divergence between market internals and $SPX. If $SPX falls back below support and closes below 4690, that will remove the "bullish" status from the $SPX chart. There would still be support at 4500, which is the lower end of that trading range.
The fact that $SPX has made new closing and intraday highs is bullish. As for the $SPX chart, there should be support at the old breakout level near 4700, although that has not been tested yet. If $SPX should fall back below there, it would be back in its old trading range, with support at 4500. However, a pullback of that magnitude while not necessarily setting off bear market alarms would remove the current "bullish" status from the $SPX chart.
Stocks plunged over 90 points at one time on Monday, December 20th. However, that produced enough of an oversold condition once again, that buyers stepped in and have taken $SPX all the way back to the top of its trading range, at 4700. The lower end of the trading range is 4500 (see Figure 1), although there is also support at this week's lows, 4530. $SPX has tried numerous times to break out over 4705 and hold those gains but has been unable to do so. But market internals have improved somewhat, so maybe this time it will happen.
$SPX is in a very volatile trading range, as $SPX has traversed the 4600 to 4700 area several times. Each time it declines, oversold conditions arise, spurring a rally. But then it fails at the top of the range. 4600 is the nearest support, with support at 4500 and 4300 below that.
Stocks came roaring back this week, after a massive oversold condition spurred the rally. As is typical for an oversold rally, $SPX rose all the way to and through its declining 20-day Moving Average. That brought it back almost to the old highs (4705) where it has met resistance before and did again. Meanwhile, the lows of last week at roughly 4500 are support, and there is also support at 4300 (the early October lows). So, there is a possibility that $SPX is still in a trading range (yellow area on the chart in Figure 1).
Stocks have been down and volatile for the last week -- an unusual time of the year for that to be the case. The new omicron COVID variant is being blamed, but that was merely the catalyst for unleashing a lot of selling that has been building up. Market internals have been deteriorating for a long time.
With the market plunging this morning on news of a new COVID variant out of South Africa causing travel restrictions, we are going to attempt to work that into the market comment even though our data does not incorporate today's (Nov 26) trading. There is still resistance for $SPX near 4700, but more importantly, the $SPX chart will turn negative on a close below 4630.
Suddenly, there is once again a wide discrepancy in performance between two of the major indices -- $SPX and $NDX -- and the rest of the stock market. This is reflected by sell signals and negative readings in breadth and put-call ratios. However, the $SPX chart and the indicators involving $VIX and implied volatility remain bullish.
