There are a lot of cross-current buffeting this market currently, and another major one has been added: President Trump has tested positive for the corona virus. This raises all sorts of uncertainty about governance (will the Vice President have to take over?) and the election. There is no way to know how this is going to play out. All we do know is that the S&P futures reacted only mildly dropping about 50 points on the news. So, the following commentary is based on the technical factors that we do know.
Over the past week, $SPX has staged a monster rally off of what was only a minor oversold condition. That rally was substantially aided by quarter-end window-dressing.
The main line of resistance, at 3425-3430 is still in place. A close above there would be bullish for the $SPX chart and for stocks in general. On the other hand, if $SPX were to close below 3300, then the bears would have the upper hand.
Equity-only put-call ratios remain on sell signals, and this is our most bearish indicator. The massive overbought conditions that pushed these ratios to 20-year lows in early September have not been worked off.
Breadth was quite strong over the past week. As a result, breadth oscillators buy signals were generated on September 28th and remain in place.
$VIX continues to trade below its 200-day Moving Average, and the 20-day MA of $VIX is also below the 200-day. Those are positive things for the stock market in that they are supposed to be indications of a $VIX that is trending lower (which, by inference, should mean that the stock market is trending higher).
In summary, we still have a bearish outlook, but the number of indicators lining up on the bearish side has diminished. That would change if $SPX closed above 3430.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.