This week saw the ninth biggest one-day point gain in the $SPX in history, as it rose 58.44 points on Wednesday. With that, $SPX had rallied over 200 points in a straight up manner, since the lows just six trading days prior (a time period which included our October Seasonal rally). That is the power of an oversold rally. It may surprise you to know that all of 10 largest point moves in history (by $SPX) have been completely reversed within a matter of days or a few weeks.
The bottom line for the $SPX chart is that if it breaks out over 2820, it would return to a bullish status. But if it does not, the pattern of lower highs and lower lows will still exist, and it will retain a bearish status.
Put-call ratios have rolled over to buy signals and have done that from extreme levels, which usually means these are going to be strong signals.
The breadth oscillators gave buy signals on October 31st and have now moved into overbought territory. That could be a good thing, if the breadth oscillators continue to expand. However, any seriously negative breadth in the next couple of days will generate sell signals.
Is there still an uptrend in $VIX? That's a good question. We've drawn one on the chart in Figure 4, and as long as $VIX remains above that red line, it's still a bearish sign for stocks. However, a close below 15 by $VIX would dispel any notion that an uptrend exists and that would be bullish for stocks.
In summary, there are a lot of buy signals among our indicators. The more recent ones -- put-call ratios, in particular -- seem pretty compelling. But I am not interested in fighting against the $SPX chart. So, we would have to see $SPX close above 2820 before we turned bullish. Lacking that, we are still leery of the downside.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.