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By Lawrence G. McMillan

The downtrend lines are still in place on the $SPX chart, but the short-term outlook has improved greatly. the rally that began on July 15th seems stronger than most of the oversold rallies that we have seen so far.

But there is stronger overhead resistance above current levels. First, there is the gap, which extends up to 4017. Closing that gap would be a strong positive move. Then above there, the trading range from early June, at 4070 4170 is strong resistance.

The equity-only put-call ratios are finally solidly back on buy signals. Not only are they trending lower, but they have broken below their early June lows. So, as long as they are declining, they will remain on buy signals.

Breadth exploded on the positive side over the past week, and both breadth oscillators are on buy signals and are in overbought territory. There was a "90% up day" on July 19th. It is a good thing for these breadth oscillators to get overbought when $SPX is in the early stages of a bullish move.

New 52-week Highs continue to be small in number, even as the market has rallied this week. The most there have been on any one day is 17. So, this indicator remains on a sell signal.

A potential major change of trend is possible, as $VIX has fallen below its 200-day moving average. That removes the $VIX trend sell signal, but it is not a buy signal.

In summary, we are still retaining a small "core" bearish position because of the $SPX downtrend. But since $VIX is no longer in an uptrend, we have reduced the size of that "core" position. Meanwhile, we are trading confirmed buy signals around it.

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

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