Weekly Stock Market Commentary 1/28/2022

By Lawrence G. McMillan

$SPX continues to be the best relative performer of the major indices. $NDX (QQQ) has already broken its lows of last September. Meanwhile, the Dow ($DJX) probed the lows of last spring. By far the worst performer, though, is the Russell 2000 ($RUT; IWM), which has essentially wiped out all of the gains of 2021. That is illustrative of what the "average" stock has been doing. I still don't think the media really gets that.

$SPX has support in the 4200-4300 area.

The market is so oversold that a rally could occur at any time. An oversold rally usually can retrace all the way up to the declining 20-day Moving Average and a little beyond, before it runs out of steam. In this case, the 20-day MA of $SPX is still quite a ways above current prices at 4600, but it is declining rapidly. Even so, that would be a substantial rally from current levels.

Equity-only put-call ratios remain on sell signals, as they continue to race higher. The weighted ratio has reached levels not seen since April 2020. The standard ratio is nearly doing the same, although not quite as forcefully. Despite their extremely oversold nature, these ratios will remain on sell signals until they roll over and begin to decline.

Market breadth continues to be terrible. In fact, the oscillators just made a new low (on January 27th) for this move These oscillators are definitely oversold, but it is going to take a massive amount of positive breadth to turn these indicators positive several days worth, at a minimum.

$VIX has increased as this market decline has taken place, but really not all that much. $VIX spiked up to 39 on January 24th, but has fallen back quiteea bit from there. That day also marked the low on $SPX so far. Thus, a $VIX "spike peak" buy signal is in effect.

So, the market is still under pressure, but we do have a couple of buy signals setting up. It is too soon to buy a boatload of stock. However, these oversold conditions will eventually mature into buy signals (they have no choice), and we will trade them as they occur. Meanwhile, tighten stops on shorts and roll down to lower strikes where applicable.

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