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By Lawrence G. McMillan

When $SPX rallied strongly after December CPI figures were released this past Tuesday (December 13th), it ran out of gas almost exactly at 4100 -- the resistance level from early December, and right about in line with the downtrend of this bear market. Sellers emerged at that point and not only thwarted the rally but pushed $SPX down so hard that it broke major support at 3900. The latter move came after the FOMC not only raised rates (again) but also made some hawkish statements about continuing to raise rates.

Now that 3900 has been broken, the entire range from 3900 to 3940 should be a resistance area, with further resistance all the way up to 4100. As for support, there is technically some at 3800, but 3700 might be tested if the bears keep the pressure on.

Equity-only put-call ratios have turned negative as well. The standard ratio has been slowly rising for a couple of weeks now, so we had downgraded that to a "sell" last week. But this week, the weighted ratio turned higher as well, and is now also a confirmed "sell."

Breadth has continued to jump back and forth between massively positive and massively negative. The breadth oscillator sell signals that were issued on December 5th remain in place, though, as breadth never was strong enough -- even on the good days -- to stop those out.

$VIX is still pretty much in a world of its own. Despite the market's recent selloff, $VIX has not responded with much of a rise. $SPX has fallen 150 points in the last two days, and $VIX is up about 2.00 points. In fact, this entire scenario -- Fed raises rates in December, market gets pummeled, $VIX couldn't care less -- is very similar to what happened in 2018. That was an ugly selloff that finally bottomed on the last trading day before Christmas (well, if you're counting overnight trading, it bottomed on the night trade that followed Christmas).

In summary, we continue to maintain a "core" bearish position because of the downtrend on the $SPX chart and have added to it since support at 3900 was broken. We will continue to trade other confirmed signals around that "core" position as they arise.

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

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