Weekly Stock Market Commentary 3/4/2022

By Lawrence G. McMillan

The chart of $SPX is bearish, with lower highs and lower lows. That is the most important thing to take away from Figure 1. After spiking sharply lower a week ago, $SPX has engineered another oversold rally. In a bear market, those are often swift but usually die out at or just above the declining 20-day Moving Average. It would take a clear breakout over the resistance at 4600 in order to re-establish a bullish trend for the $SPX chart.

The declines this year have bottomed out with steep V-shaped recoveries just above 4200 and, later, just above 4100. So that general area represents support.

Equity-only put-call ratios remain on buy signals, although both have curled back up slightly over the past day or two. While these are on buy signals, they aren't strongly rushing lower.

Market breadth had been poor, for the most part, but the strongly positive day of breadth on March 2nd rolled both breadth oscillators over to buy signals. They are clinging to those buy signals now, but another negative day of breadth today would likely cancel them out.

Implied volatility is giving us a more negative picture than it has in a long time. The trend of $VIX remains strongly higher, and that is bearish for stocks.

You may have noticed that I did not refer to the war in Ukraine once while describing the market. In my opinion, the problems that are driving the market lower are separate from that -- and although Ukraine news might cause some short-term movements -- it would be naive to think that a solution to that crisis would suddenly revert $SPX into a bull market.

In summary, the major signals are mostly bearish: the trends of $SPX (down) and $VIX (up). Hence, we are continuing to maintain a "core" bearish position. Short-term oversold buy signals can be traded around the "core" bearish position.

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