This past Monday, March 4th, $SPX made another attempt to challenge the resistance at 2820. It got as high as 2816 -- essentially the same levels as last October and November before falling back once again.
Now it has fallen back below the 200-day Moving Average, which is at roughly 2750 and more or less moving sideways. Furthermore, the previous trading range (2750 - 2820) has been violated on the downside.
Equity-only put-call ratios have begun to rise, as put buying has accompanied the stock market's decline. The weighted ratio (Figure 3) is on a clear sell signal -- both to the naked eye and also according to the computer analysis programs. The standard ratio (Figure 2) is not yet in agreement as it maintains its status as "buy."
Market breadth had been so strong throughout the post-Christmas rally that we saw the most consistently overbought readings in history from the "stocks only" oscillator. But now, breadth has weakened and both breadth oscillators are on sell signals.
Volatility has been rather benign -- not responding strongly to the market's breakdown over the past few days. This is really nothing new, as $VIX responded poorly to the declines of last year as well. In any case, we continue to feel that a close above 17 by $VIX would be negative for stocks.
In summary, things are beginning to look a lot more negative. Only a close above 2820 would eliminate these worries, but it appears that the bulls had their chance at that and failed once again. Now, it's the bears' turn.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.