Early this week, stocks continued to sell off from their mid- August highs. But oversold conditions emerged (and are still in place in some cases), and $SPX rallied off of the 3900 level. That reinforces short-term support at 3900, and there should be support below that at 3800 and at the yearly lows, nearly 3637. But the next area of importance might be the resistance levels the first of which is at 4200, and then 4300 (the mid-August) highs. These oversold rallies have occurred all during 2022, with the average one gaining about 300 $SPX points.
Equity-only put-call ratios remain on sell signals. They are not as oversold as they were last summer when buy signals were generated, but from a longer-term viewpoint, these ratios are rather high on their charts and might be considered oversold in that regard. In any case, as long as they continue to rise, that is bearish for stocks.
Market breadth finally snapped a long 7-day negative streak with a strongly positive day on September 7th. Even so, both breadth oscillators had descended so far into deeply oversold territory that they have still not generated a buy signal.
$VIX has been the indicator that has given us some new buy signals. First, a new "spike peak" buy signal occurred at the close on September 7th, and then the TREND of $VIX generated a buy signal as of September 8th.
In summary, we are maintaining a "core" bearish position because of the downtrend that is in place on the $SPX chart. We have rolled strikes down and taken profits where appropriate, though. Meanwhile, we are trading new oversold buy signals around this "core" bearish position.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.