Stocks continue to fall, as the downtrend that began at the end of July persists (red lines on the chart in Figure 1). New relative lows were made again this week, so the pattern of lower highs and lower lows is evident. That defines a downtrend, and it also warrants holding a "core" bearish position.
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.
The week after September expiration (i.e., the week after the third Friday of September) is historically a very negative week for the market. In fact, last year, that week saw a 180 point decline in $SPX, the largest point decline that we have seen in the 33 years that we have been using this indicator. It was not the largest percentage drop in a week for this system (that occurred in 2011).
Join Larry McMillan as he discusses the current state of the stock market on August 21, 2023.
Join Larry McMillan as he discusses the current state of the stock market on August 7, 2023.
We have been talking about the possibility of this buy signal occurring, and now it has. That is, the running total of advancing volume minus declining volume, daily (in “stocks only” terms), has reached a new all-time high – exceeding that of December 2021. When CVB reaches a new all-time high, $SPX follows.
For the most part, stocks have remained in an extremely bullish mode over the past week. The one "hiccup" was when heavy selling hit the market the day after the FOMC announcement, ostensibly due to some financial news out of Japan. That created an 80-point range day in $SPX, which is one of the larger ones in recent months. Even so, stocks seem to be bouncing back quickly.
David Krell was the Chairman and co-founder of the first U.S. electronic options exchange – the International Securities Exchange (ISE). I spoke with him recently, to get his perspective on what proved to be a very important development in option trading.
Most major stock indices made new 2023 highs this past week ($RUT; IWM is still a little shy of that). Thus, the charts remain positive, and a "core" bullish position is warranted. There are several gaps on the $SPX chart, and a pullback to support at 4440 would fill all the recent ones. There is further support at 4385, and then major support at 4330 and 4200. A violation of the support at 4330 would be a very negative development and would require a change of our "core" position, but a pullback of that depth doesn't seem likely right now.
On the upside, the next resistance area is at 4650, the March 2022 highs, which occurred early in the 2022 bear market. Beyond that, the all-time highs at 4800 could be in play.
The last five trading days have seen $SPX rally strongly, breaking out to new 2023 highs. This keeps the $SPX chart bullish and keeps us in our "core" bullish position. $SPX has now reached the first (minor) resistance area at 4510. Above here, the next significant resistance is at 4630, and then the all-time highs at 4800 would be within reach.
