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By Lawrence G. McMillan

The long-awaited breakout over what had become triple resistance at 4100 has occurred. $SPX closed above that level on February 1st and then added another strong day on top of that on February 2nd, thus confirming the breakout with a two-day close above 4100. That should lead to a challenge of the next resistance levels. First, there is the gap just above 4200 that created the island reversal back in August, which led to the downward leg into October at that time. Next up after that are the August highs at 4300.

Does this mean that the bear market is over? There is no way to answer that for certain. Most extended bear markets have one huge rally that is designed to fool both the bulls and the bears. This could be such a rally. Our trading systems and timing horizons are short-term in nature, so for now they are mostly bullish. That is about all we can say for sure.

Equity-only put-call ratios (Figures 2 and 3) remain strongly on buy signals as they are racing lower on their charts. As long as they continue to drop, that is bullish for stocks.

Market breadth continues to remain extremely strong. The breadth oscillators are both on buy signals and are in deeply overbought territory. When $SPX is breaking out on the upside in a new leg to a bullish market, it is a good thing for these oscillators to get overbought and to stay that way; it is evidence that the rally is broad and strong.

The volatility complex is generally giving positive signals for stocks. The trend of $VIX buy signal is still in place and will continue to be as long as $VIX closes below its 200-day Moving Average.

In summary, we are no longer carrying a "core" bearish position. What would prompt us to reinstate one? $SPX would probably have to close back below 4000 in order to consider doing so. Meanwhile, we are trading the various internal indicators as they generate confirmed signals. This time around, the internal indicators turned bullish before $SPX confirmed them with an upside breakout, but all are in bullish mode at this time.

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

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