Many volatility traders – we are among them – complained about the lack of response by volatility derivatives during last fall’s market decline. That was especially true in the downward thrust in December. $VIX itself managed to put together a decent move, as it rose from 16 in early December to 36 on Christmas Eve. But one cannot trade $VIX; only the $VIX derivatives are available for trading.
Some are saying that a bullish interview by Fed Chairman Powell on 60 Minutes last Sunday was the launchpad for the rally this week. Whatever the reason, it is apparent that the bulls have a lot of fire- power left, and the move above 2820 could be significant. But a breakout above 2820 only means that the next resistance level -- the all-time highs at 2930+ come into play. On the downside, there is support at 2720 (last Friday's lows), 2680 (the early February lows), and 2600- 2620, as well as the ultimate support at 2350 (the December lows).
This past Monday, March 4th, $SPX made another attempt to challenge the resistance at 2820. It got as high as 2816 -- essentially the same levels as last October and November before falling back once again.
Now it has fallen back below the 200-day Moving Average, which is at roughly 2750 and more or less moving sideways. Furthermore, the previous trading range (2750 - 2820) has been violated on the downside.
Stocks have run into a bit of a roadblock this week, as the resistance in the 2800-2820 area on the $SPX chart has proven to be rather formidable. Of course, it didn't help the bulls that the market had already rallied over 450 points in two months before attempting to challenge that resistance area.
Stocks have continued to push higher, setting up a challenge of the major resistance at 2800-2820. A lot of people are watching that area with some apprehension (as are we), so if $SPX breaks out above 2820, it should generate strong buying from technicians. That sort of breakout would turn the $SPX chart bullish. But, for now, it remains in a "bearish" state, because any failure of this amazingly strong rally below 2800 would just be another "lower high" on the chart.
$SPX continued its phenomenal post-Christmas rally (which to date has registered over 400 points of gains), but has still not broken through resistance at 2820. Unless that happens, the next peak on the chart will still be a lower high, and the $SPX chart will still have a negative tilt to it.
The first signs of bearishness are beginning to creep into the superbly strong rally that has taken place since Christmas. $SPX rallied into the 2720-2740 area this week, which is now resistance and has now backed off. Now we have our first sell signal.
We have written repeatedly about the similarities between the markets of late 2000 and early 2001, ascompared to late 2018 and early 2019. Those comparisons are still valid.
The stock market's new love affair with the Fed continued this week, and the market really took off after the FOMC meeting on Wednesday. $SPX has now broken out over minor resistance at 2675, having gained a whopping 15% since the market's low close on Christmas eve (a mere 26 trading days ago).
The most important resistance is at 2800-2820. There is support at 2620, and then 2350.
Last Friday (January 18th) the “stocks only” breadth oscillator stood at +854.04 – the fourth highest reading of all-time. This is extremely overbought, but is not a sell signal (“overbought does not mean sell”). In fact, in the past, extremely overbought readings have often led to much stronger markets in the short term.
