On Friday, May 7th, $SPX broke out to a new all-time high and so did the Dow ($DJX). However, after an early Monday morning rally, things reversed badly, and $SPX dropped sharply for the first three days this week, losing a whopping 173 $SPX points.
But there was no follow-through the next day, and in fact $SPX has rallied strongly, regaining the 4120 level and more.
Equity-only put-call ratios remain on sell signals. You can see that both ratios are rising more sharply now (Figures 2 and 3) as put buying has picked up in the last week.
Breadth remains a rather fickle indicator. NYSE breadth has been much stronger than NASDAQ breadth. Hence the two breadth oscillators are split at the current time: NYSE breadth is on a buy signal, while "stocks only" is not.
New 52-week Highs vs. New 52-week Lows has also given a sell signal.
While this bit of stock market mini-carnage was taking place, $VIX rose sharply, entering "spiking mode" on May 11th. While $VIX is in "spiking mode," it is negative for the market, but it also leads to a "spike peak" buy signal eventually. That buy signal came at the close of trading on Thursday, May 13th.
In summary, the market has been wounded by this sharp decline. Even so, I would not say that the $SPX chart is bearish. It would have to break support at 4000 and 3870 in order to "earn" that negative appellation. But we do feel the bears have the upper hand short-term.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.