The stock market has put on a good show of strength this week, after breaking out on the upside from the trading range that had held prices in check throughout the last half of December. $SPX is now challenging the downtrend line of this bear market as well as its declining 200-day Moving Average, both of which are near 4000. A clear breakout above 4100 would be very bullish.
Our internal indicators have shown a lot of strength this week as well. But besides the resistance presented by the bear market trend line and the declining 200-day Moving Average, there is also a negative seasonal pattern at play through January 27th (the 18th trading day of January). The potentially more positive news is that once this particular bearish seasonal periods ends, it is followed by what is normally a strong bullish seasonal pattern at the end of January.
There is technically resistance all the way up to 4100, which is why I think that level is the crucial one in deciding if the bear market is over (at least for a while). On the downside, I think it would be negative if $SPX fell back below 3900 again.
Equity-only put-call ratios have turned downward, thus generated buy signals for the broad market.
Breadth has been extremely strong on 6 of the last 7 trading days. As a result, the breadth oscillators are on buy signals and are in overbought territory. However, it is a good thing for the breadth oscillators to be overbought when a new upward leg is starting out in $SPX (which it appears to be doing).
$VIX has remained subdued, so the "spike peak" and trend of $VIX buy signals remain in place. $VIX is now near the 2022 lows once again. In the last year, $VIX at this level was a warning sign. We shall see if things have changed.
So, despite the positive indicators in put-call ratios, breadth, and $VIX, we are still maintaining an out-of-the-money bearish position because the last time that$SPX challenged the downtrend line and 200-day Moving Average,it was summarily rejected.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.