The first signs of bearishness are beginning to creep into the superbly strong rally that has taken place since Christmas. $SPX rallied into the 2720-2740 area this week, which is now resistance and has now backed off. Now we have our first sell signal.
So, $SPX may not trade straight down from here, but this is a severe warning signal. We have been warning against complacency, so to avoid being complacent, this signal should be taken. If one were to try to avoid it by citing the other examples of it being premature, that would be an error, in my opinion.
Even without the sell signal, the $SPX chart is still negative in that it is still a series of lower highs and lower lows occurring below the 200-day Moving Average. This will be true unless $SPX can close above the major resistance at 2820.
Equity-only put-call ratios remain on buy signals, although they have curled upward over the past two days just slightly. So far, the computer analysis programs are saying that the buy signals are intact.
Market breadth has been spectacular on this rally. This week, a new relative high was registered on the "stocks only" breadth oscillator, so these breadth oscillators are still on buy signals. It would likely take another couple of days of negative breadth to generate sell signals.
$VIX briefly slipped below 16 this week, which was its lowest level since early October. We had been saying that a $VIX close below 16 would be bullish, but apparently that was not true. A move below this week's lows would be bullish, though, for sure.
In summary, the intermediate-term outlook remains bearish. The short-term outlook may not be so bullish any longer, either, although there is only the lone sell signal. If $SPX breaks below support at 2620, that would be very negative.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.