Last Friday, May 20th, $SPX sold off nearly 100 points intraday but then recovered nearly all of it by the close. That was a new lower low, keeping the downtrend intact on the $SPX chart. But it was also an exacerbation of extremely oversold conditions, and the market has rebounded since then. The bottom line is that while the intermediate- and longer-term are still negative because of the trend of $SPX, the short-term is positive because of new, confirmed buy signals that have taken place. It could carry to 4150 on $SPX, and perhaps as high as 4300.
Equity-only put-call ratios have rolled over to buy signals. Not only is this confirmed by the computer programs that we use to analyze these charts, but it is also confirmed by the naked eye for it is visible that they have rolled over and are now headed lower.
Market breadth has improved, too. These breadth oscillators have had trouble sustaining buy signals in the last month or so, but this one seems tradeable.
Regarding $VIX, the "spike peak" buy signal of May 11th is still in place. The trend of $VIX, however, has not taken on a bullish slant. Both $VIX and its 20-day Moving Average continue to remain above the 200-day MA. So, don't expect a change of trend, or even a change to neutral, from this indicator soon.
In summary, the long-awaited (by the bulls) oversold rally is occurring. How far it can continue is a matter of conjecture, but at this point the intermediate-term trend is still bearish. In any case, we trust our indicators will keep us in tune with the trends, both short-term and intermediate-term. For now, we are still holding a "core" bearish position and are trading these new buy signals around it.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.