The rally that began in mid-October was a fairly strong one that was backed by massive oversold conditions that existed at the time. By the time it got to 3900 (400 points off the lows), it was a bit vulnerable, and when Fed Chairman Powell made some very negative comments, the market quickly gave back 200 points. After that FOMC meeting, the market remained rather leery of the CPI data that was to be released early in the morning of November 10th. So, it traded in that 3700-3900 range while it waited. The CPI data was modestly encouraging (although it remains to be seen what the Fed thinks of it), and the market exploded to the upside as many traders and investors think that interest rates have peaked.
Regardless of whether or not that is true, the breakout over 3900 was strong and positive and now $SPX has a chance to challenge both its declining 200-day Moving Average (currently around 4100 and falling) and even the downtrend line defining this bear market (thick blue line on the chart in Figure 1). Above there, the next resistance is at the August highs, near 4300.
Equity-only put-call ratios remain on buy signals. There was some doubt this past week about those buy signals, but the computer analysis programs continued to "say" they were intact. Now, with the large post-CPI rally, both ratios have made new relative lows, thereby confirming that the buy signals are indeed still in place.
Breadth has been jumping wildly back and forth as it seems to accentuate whatever direction the market is moving, day-to-day. Nothing illustrates this better than the fact that November 9th was a "90% down day" and November 10th was a "90% up day." This is our most sensitive short-term indicator, and it can be subject to whipsaws. Currently, both breadth oscillators are back on buy signals and are in modestly overbought territory after having flip- flopped in and out of buy signals a couple of times recently.
$VIX has continued to decline steadily since early October, and thus the "spike peak" buy signal is still in effect. The trend of $VIX is neither on a buy nor sell signal at the current time. However, there will be one soon.
We are still holding a "core" (but now out-of-the-money) bearish position because of the downtrend on the $SPX chart. In addition, we have traded several other shorter-term positions around that and will continue to do so as long as confirmed signals are generated.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.