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By Lawrence G. McMillan

Stocks started the year off strongly, rallying with expanding breadth and favorable put-call ratio buy signals. However, in the end nothing changed as once again $SPX was unable to penetrate through the downtrend line that defines this bear market, as well as failing to rise up through its declining 200-day moving average. So, stocks have fallen back from there. The first support level at 3940 has been violated, and the next one at 3900 might be in jeopardy, too. That leaves 3760-3840 as the next support area. A failure there, and one can state with certainty that the bear market has resumed.

There are always buyers, so perhaps the bulls can try to turn this around. If they do, there is now resistance at 4015 -- this past week's highs. That is also still the general area of the bear market downtrend line. Even so, the major resistance at 4100 would have to be overcome in order to say that a new bull market had possibly begun.

Equity-only put-call ratios are still clinging to buy signals. That is, they peaked a little over a week ago and have not exceeded that peak since. They are not exactly dropping rapidly, though, so these buy signals seem a bit tenuous.

Breadth started the year off in spectacular fashion. As a result, both breadth oscillators were and still are on buy signals, although the pullback over the past couple of days has brought them down a lot.

$VIX indicators continue to be generally bullish in their outlook for stocks. However, there are some potential warning signs. The trend of $VIX buy signal remains in effect, and that one seems safe for now.

In summary, the fact that $SPX failed once again at the bear market downtrend line is a warning that one should continue to maintain a "core" bearish position. However, we will trade other signals around that.

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

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