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.
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.
During the last market decline (basically, during all of September and a little bit in October), $VIX just wasn’t too “worried” about the decline in stocks. Yes, one can see, from the chart of $VIX, that it had been slowly rising since the beginning of September, exactly in line with the downtrend in SPX which began at that same time. However, except for the one spike upward in mid-September, $VIX didn’t rise sharply. Perhaps if the decline in stocks had accelerated, $VIX would have responded better, but in reality, $VIX did not prove to be much of a hedge against losses in the stock market during this most recent stock market decline. This happens from time to time, the worst case probably being December 2018.
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.
After making a new all-time high on September 2nd, $SPX has failed to add to the gains. Perhaps the sideways movement is all the correction that this market needs, similar to what we saw at the end of July. Regardless, the $SPX chart remains bullish in that it is above support and all of its major trendlines are moving higher.
There is nothing unusual about this week's market action. $SPX continues to rise after the brief pullback on August 16th to 19th. The NASDAQ-100 ($NDX; QQQ) is very strong as well and is making new all-time highs along with $SPX almost daily.
The major support level for $SPX is still 4370, although that is beginning to fade into the distance as the Index plows ahead. For now, we are still of the opinion that the $SPX chart is bullish as long as support at 4370 has not been violated.
After bouncing off of support at 4370 last week (the third time that $SPX has found support at that level --meaning it is now extremely important support), $SPX rallied to new intraday and all-time highs. The NASDAQ-100 ($NDX; QQQ) did the same, but the Dow ($DJX) has lagged behind.
