Weekly Stock Market Commentary 9/29/2023

By Lawrence G. McMillan

The $SPX Index broke down through 4330 a week ago (Friday, September 22nd), tried to rally back above it for one more day and then gave way to a sharp selloff. Thus, 4330 was not only a crucial support level that has now been broken, but it is also going to serve as resistance. There are a number of things going on right now in the market, but as you can see, there is now a downtrend (red lines in Figure 1) -- lower lows and lower highs. That is a full-fledged bearish trend, not just minor correction.

There is resistance at the 20-day MA of $SPX, currently at 4410 and beginning to drop rapidly. There is a gap on the $SPX chart up to 4400, and that should provide resistance in that area, too. Above those are the previous resistance levels at 4540 and 4600, but those will only come back into play if the downtrend is broken.

On the downside, there should be some support at 4200 which was the high of January, 2023. The 200-day Moving Average of $SPX is near there as well and could also provide support.

Equity-only put-call ratios are back in a bearish mode, rising daily, after having toyed with buy signals a week or more ago. As long as these ratios are rising, that is a bearish sign for stocks. These ratios won't generate buy signals until they roll over and begin to trend downward.

Market breath has finally improved a little, with advances leading declines on three of the last four days. Even so, both breadth oscillators remain on sell signals. They are in oversold territory, so they will eventually generate buy signals. The next buy signal from this indicator is not far away one more day of positive breadth should do it.

The volatility "space" has been mostly bullish for stocks for quite a while now. That has recently changed a little, but not a lot. $VIX is in "spiking" mode. The market can drop sharply while $VIX is in spiking mode, as we have seen this past week. But a new "spike peak" buy signal is imminent.

In summary, the breakdown by $SPX has placed a negative pall on the market, and that is evident not only from the violent reaction to the break of support at 4330, but also from the fact that there is now a downtrend in place. That warrants holding a "core" bearish opinion. Around that, though, several oversold conditions are building towards buy signals, and so we will trade those when they appear. To me, it looks like this market is going to drop sharply into October. October is known as the "bear killer" month. That's true even though there have been some massive declines in October over the years, but typically the bottom also occurs in October -- after those declines. Hence the nickname "bear killer."