Stocks have struggled this week, but $SPX has managed to remain above support. Even though a number of indicators are rolling over to sell signals, there are still some bullish indicators in place.
After making a new all-time high on January 20th, $SPX seemed to run out of steam as it traded sideways for four days. Then, as is often the case when $SPX has not had much of a correction in a fairly long period of time, everyone headed for the exit at once on January 27th. $SPX was down 117 points at its lows that day, and it closed below its rising 20-day moving average for the first time since November 3rd. Whether that was complicated by the short squeeze in Gamestop (GME) or not is irrelevant. $SPX bottomed at least for now at 3732, right in the middle of the 3725 3750 support area. The next support area is at 3630 3650. A break below there would be truly bearish, and a close below 3725 would be modestly bearish.
Equity-only put-call ratios continue to remain very low on their charts, as call buying has been rampant even with the market pulling back. But they are not on sell signals yet.
Market breadth has weakened, though, and both breadth oscillators are on sell signals.
Volatility has been pretty crazy this week. There was a volatility spike buy signal, and so far it has remained in place.
In a broad sense, the market is behaving in a way that is very similar to January 2020: sell signals have appeared, and $SPX is pulling back slightly from all-time highs.
In summary, the $SPX chart is still bullish, and that is the most important indicator. We have both buy and sell signals in place right now, and that is probably going to continue to be the case as long as $SPX holds above support. However, a close below 3725, and especially a close below 3630 would tilt the balance heavily to the bears.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.