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Weekly Stock Market Commentary 9/4/2020

By Lawrence G. McMillan

The S&P 500 Index ($SPX) and NASDAQ ($NDX; QQQ; $COMPQ) were having one big party, with new intraday and/or closing highs having been registered for 11 of 12 days ($SPX) and 13 in a row ($NDX). That party came to a swift end yesterday, Thursday, September 3rd. But has the party really ended, or is this just a pause? $SPX did not even quite pull back to its rising 20-day moving average.

The first support area of significance is 3400 the previous all- time highs. Then there is a minor support area at 3340 or so, followed by support at 3280.

Equity-only put-call ratios continued to fall as $SPX and $NDX rallied and thus reached levels not seen in 20 years (standard ratio) and 16 years (weighted ratio). Yesterday's action, while accompanied by an increase in put buying, curled these ratios up slightly and both are likely to confirm sell signals very soon.

Market breadth has been struggling for a long time, and both oscillators are on sell signals now.

Which brings us to volatility, where action has been heavy and wild. $VIX rose sharply this past week, even while $SPX was rising -- something it rarely does. But it pulled back today and that is a short-term BUY signal for stocks!

There are a lot things going on right now; a lot of "moving parts," if you will. But the main thing to keep an eye on is the chart of $SPX, for unless $SPX is confirming your indicator signals, your indicator signals might be wrong. At the current time, the chart of $SPX is still bullish and will be as long as it closes above 3400. A breakdown below there will add more bearish fuel to the fire.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.

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