By Lawrence G. McMillan
In falling as far as it has, $SPX broke below almost all of the support areas that had been in place. There is now support at 2350 -- last Monday's lows. There was also a bit of support in that area back in the spring of 2017, but that is probably rather meaningless; support that old is not too relevant to a market that has this much momentum and volatility.
There is resistance in the 2580-2600 area, where support had previously existed. Oversold rallies, such as the one we appear to be embarking upon now, typically carry up to and slightly beyond the declining 20-day Moving Average.
Equity-only put-call ratios reached extreme oversold levels as the market plunged over the past few weeks. They were already in oversold territory in November, but the buy signals from that time frame were wiped out when put buying exploded again in December. Now they have reached new relative highs and are forming buy signals once again.
Market breadth has been just terrible. It will take several days of positive breadth before buy signals can be generated here.
$VIX remains in an uptrend, and that is longer-term bearish for stocks. In the short-term, though, a new $VIX "spike peak" buy signal occurred at the close of trading on December 26th, and so that system is in place once again.
So, for now, enjoy the oversold rally, and perhaps even a sharp tradable decline or two. But don't plan on this bear market being over just yet.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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