The oversold rally that began in early October was proceeding at a good pace, and was strengthened by a breakout over 3900. However, the comments by Fed Chairman Powell after the FOMC meeting knocked the market down significantly. We have often referred to the fact that the current market bears great similarity to the bear market of 1973-1974, and this is yet another example. Back then, Fed Chairman Arthur Burns would speak, and the market would tumble.
Yesterday (October 6th), on the CBOE, someone bought 50,000 $VIX Mar (22nd of 2023) 150 calls for 0.19. So, that’s 50,000 contracts. Strike is 150 for $VIX (or technically, for the March (2023) $VIX futures. And the expiration date is roughly six months from now.
$VIX – the indicator which has not exactly been in tune with the negativity of this 2022 bear market – has now generated an intermediate-term trend sell signal. By that we mean that both $VIX and its 20-day Moving Average are above the 200-day Moving Average at this time. The sell signal will be in effect as long as that is the case. A previous trend sell signal occurred in December 2021 and was quite effective. In between, there was a trend buy signal, which was effective at first, but then deteriorated quickly.
The broad market made new lows for 2022 a week ago. That reaffirms the pattern of lower highs and lower lows on the $SPX chart, meaning that the bear market is still intact. There should some support at last week's lows, near 3650. Beyond that, one has to go to a longer-term chart to find support: 3500 and then 3200.