Stocks broke down early this past week, but found support in the same area as the late-December trading range. Specifically, $SPX broke down below 3930 and traded down into the 3760-3850 support area (the trading range from the end of last December). It found support there and bounced. There is still overhead resistance all the way through the zone from 4080 to 4200
At the lows, oversold conditions arose, and some are still in place, while others have morphed into buy signals. The current rally is merely back to the declining 20-day Moving Average of $SPX just a normal oversold rally.
Equity-only put-call ratios remain on sell signals. The weighted ratio (Figure 3) is just starting to move strongly up its chart, so that signal appears to have a ways to run. The standard ratio (Figure 2) is already in oversold territory near the top of its chart.
Breadth was extremely poor as $SPX traded down from March 6th through the 13th. That pushed the breadth oscillators, which were already on sell signals, down into deeply oversold territory. They remain in that state, since the two days of positive breadth since then has not been enough to drag them back onto buy signals.
For the first time in quite a while, $VIX has responded to a market selloff by exploding to the upside. As a result, a new "spike peak" buy signal has been established.
The increase in $VIX, though, did stop out the previous trend of $VIX buy signal, since $VIX closed above its 200-day Moving Average, which is at 24.00 and declining. At the current time, there is no trend of $VIX signal in either direction.
So, there are plenty of cross-currents right now. The $SPX chart is still bearish, in my opinion, as it is below resistance and below its declining 20-day Moving Average. On the other hand, we are seeing buy signals from certain trusted indicators so those can't be ignored. The one interesting bearish development that could occur would be for the 20-day MA of $VIX to cross above the 200-day MA. That's what happened last September and led to a sharp decline into the October lows. As usual, we will be trading these other confirmed signals around our "core" position.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.