Stocks continue to struggle. The downtrend of $SPX is quite evident in Figure 1, and as long as that Index is in a downtrend, a "core" bearish position can be maintained. $SPX made a new closing low this week, as it probed down towards 4100 once again. The general area of 4100 4200 still represents near-term support. Below that, the next support area (red horizontal line on chart) is at the highs of about a year ago, just below 4000.
The chart of $SPX is bearish, with lower highs and lower lows. That is the most important thing to take away from Figure 1. After spiking sharply lower a week ago, $SPX has engineered another oversold rally. In a bear market, those are often swift but usually die out at or just above the declining 20-day Moving Average. It would take a clear breakout over the resistance at 4600 in order to re-establish a bullish trend for the $SPX chart.
The media seems to think that everything that is wrong with the market and the economy is due to the military conflict, but that is not the case. $SPX is in a bear market and will continue to be as long as the downtrend exists (see the blue line in Figure 1). However, the action on February 24th exacerbated an already oversold condition, and now another oversold rally seems to be taking place.
The tensions regarding a potential Russian armed invasion of Ukraine have caused some wider than usual swings in the market, but the underlying causes of the bearish action on the stock market are far greater than this potential conflict.
$SPX remains in a downtrend (see blue line on the chart in Figure 1), and that is what makes the chart bearish. The fact that the various short-term moving averages and the "modified Bollinger Bands" are all sloping downwards only adds to the bearishness.
The broad stock market had a very strong rally over the 4-day period, extending from January 28th through February 2nd. The oversold conditions that existed just prior to that were massive and part of the rally was a reaction to those conditions. In addition, there is a verified positive seasonality to the end of January, as mutual funds and other large institutions put cash to work. Both of those conditions aided the rally greatly, but they are no longer in effect. For now, the demarcation line between bear market and a possible reversion back to a bull market is the negative trendline show in blue in Figure 1.
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).
