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.
The major indices have had a very strong run since the beginning of October, and especially since breaking through to new all-time highs on October 21st. Now, they are taking a "breather," and some sell signals may be setting up. Support on $SPX is likely at 4525 4550, which is still 100 points below current levels.
All of the major Indices have broken out to new all-time intraday and closing highs. This includes the "usual" $SPX, $DJX, and $NDX, but now they have been joined by the Russell 2000 ($RUT; IWM), although $RUT and $DJX did not join the party yesterday (November 4th). These charts are positive, and that dictates holding a long "core" position. There should be support at the breakout levels, which for $SPX is the 4525 - 4550 area.
Major Indices have broken out to new all-time highs. This includes $SPX, the Dow ($DJX), and NASDAQ ($NDX; QQQ) -- just barely for QQQ. The Russell 2000 ($RUT; IWM) is noticeably lagging. In any case, we use $SPX as "the market," and it is strong. This breakout has re-established a "bullish" rating for the $SPX chart.
The rally that began with an upside gap move on October 14th has turned out to be very strong, and $SPX has now traded at and closed at a new all-time high. The Dow is very close to following suit, but NASDAQ and the Russell 2000 lag behind. More about that later.
There is still a chance that $SPX is merely at the top of a trading range that extends roughly from 4300 to current levels, at 4550. A clear breakout above 4560 or so would dispel that notion.
The broad stock market has strongly reversed upward over the past 48 hours. Tuesday night, in overnight Globex trading, the S&P futures were trading at 4320. This morning, they are at 4460. That's a pretty big increase in 48 hours.
Sentiment is changing nearly daily, producing wide swings in $SPX. But the Index is still in a downtrend, with lower highs and lower lows on its chart (blue lines in Figure 1). The lower end of the range is just below 4300, as there were several rather strong reversals from that area in the past week. On the upside, there is resistance up to 4465. A broader view shows three support areas (horizontal red lines in Figure 1) at 4233, 4160, and 4060 and, of course, resistance at the all-time highs (4545).
As is often the case, September turned out to be a bearish month, as $SPX made a new all-time high on the 2nd trading day of the month, but then reversed and traded down to the lows of the month on the last trading day. This action has put the $SPX chart in a downtrend, as there are now lower highs and lower lows (on a closing basis). A move below the mid-month low at 4305 would confirm this bearishness. We now enter October, which has a reputation as a "bear killer," but the first part of the month can be ugly before lows are reached later in the month.
$SPX broke down on Monday, September 20th, violating several support levels, including the very important one at 4370. A gap was left on the chart at 4430. In a truly bearish environment, further selling would have followed. Instead $SPX has risen, filled the gap, and closed back above 4430. In addition, several buy signals were registered (although to be fair, there are still some lingering sell signals as well).
For now, $SPX has tentatively found support near 4435. But that only occurred this week, so it is hardly seasoned or tested. The first truly tested support area is still the major one at 4370, and that is not too great of a distance from today's levels. As long as the support at 4370 holds, the bulls are still in control although it might not completely seem like it right now. A violation of that support area, though, would change things in a negative manner.
