A decoupling of sorts has appeared in the market this past week. It's a bit reminiscent of the "Nifty 50" group back in the 1970's, but if today's version of those high-flyers really does have a serious correction, it will drag everything down with it, just like it did in 1973-74.
Meanwhile, on the $SPX chart in Figure 1, I've only marked a importance at this time. The two support areas are very important. The first is at approximately 3330-40. If that is violated, then that could then target the next support area, which is at 3210-3220.
Equity-only put-call ratios last gave a well-defined signal when they generated sell signals in mid-January. Recently, they have moved literally sideways, not giving a signal one way or the other.
Market breadth, for the most part, has been a laggard. But this week, when $SPX began to weaken, breadth was positive. But it can't fight the heavy selling of Friday.
Volatility, however, is beginning to show some serious signs of wear and tear. First of all, realized volatility gave a sell signal back in January, and that is still in place. Now, implied volatility ($VIX) is on a sell signal as well, since $VIX has closed above its 200-day Moving Average.
In summary, the bears surprisingly have something to work with. A sell signal in $VIX is nothing to scoff at, and if it were accompanied by a breakdown below $SPX support at 3330, that would be a potentially powerful bearish combination. For now, though, the bulls can still rescue things, but they are running out of room.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.