The overbought conditions intensified this past week with a couple of huge up days on June 5th and 8th, but then exploded into one of the worst down days in history on June 11th. The wild ride seems destined to continue.
As far as the $SPX chart is concerned, the breakdown on the 11th raises the possibility of a more bearish scenario, especially if the 3000 area is taken out. But for now, it's just a very sharp pullback in what is still a rising trend on the $SPX chart. The bears have more work to do if they want to take control.
Equity-only put-call ratios remain on buy signals in a very overbought state. They curled upward a bit in response to the heavy selling (and put buying) of June 11th, but they still remain on buy signals at this time, according to our computer analysis programs.
Market breadth expanded tremendously up through and including June 8th, culminating with "90% up days" on both June 5th and June 8th. In doing so, both breadth oscillators traded at the highest levels in their entire history. But, in a matter of just three trading days, breadth deteriorated so badly that both of the oscillators are now on sell signals.
Volatility is the only area which was not overbought. In the intermediate-term, it is still bearish because $VIX continues to trade above its 200-day moving average. But in the short-term, $VIX has spiked up, so a new "spike peak" buy signal is imminent.
In summary, market action is volatile, and new signals are setting up for both the bears and the bulls. We will trade confirmed signals only, but have no bias towards them, so we will trade both buy and sell signals. In the intermediate-term, though, a more bearish outlook is justified as long as $VIX remains above its 200- day moving average and as long as that island reversal is in place on the $SPX chart.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.