In falling as far as it has, $SPX broke below almost all of the support areas that had been in place. There is now support at 2350 -- last Monday's lows. There was also a bit of support in that area back in the spring of 2017, but that is probably rather meaningless; support that old is not too relevant to a market that has this much momentum and volatility.
The bears have a tight grasp on this market right now, which is a bit surprising since it is so late in the calendar year. Typically by this time, even in bear markets, there is something of a year- end rally.
New post-October lows were established this week when $SPX traded down to 2583 on Monday. That confirms that this is a bear market, in case you had any doubts.
The action in the stock market is getting more volatile, at least in realized terms (implied volatility has not kept pace). The bottom line is that resistance at 2800-2820 has been reinforced, and similarly, support at 2580-2620 has been reinforced as well. The $SPX chart is bearish, in our opinion, as long as $SPX remains below 2820.
There have been a number of positive developments in the past week or so: buy signals, oversold conditions producing rallies, and so forth. But the primary concern is how the $SPX chart looks, and it continues to look bearish. It is still in a downtrend, with heavy resistance at 2820. If that resistance were overcome, then our stance would change to a more positive one.
The $SPX chart remains bearish. This week's action did not decline far enough to be a test of the October lows. The support area at 2580-2600 remains the bulls' best hope at the moment. If that gives way, then 2530 is the next stop. A violation of that area would be very negative.
If you enjoy seasonal trading patterns, they abound from the end of October (the “October Seasonal,” which was strong this year), through the beginning of the new year (the “Santa Claus” rally). Over the years, we have combined three different late-year seasonal patterns into one trade.
The three patterns are as follows:
Several times, we have mentioned the fact that in a bear market, there is usually selling in October, followed by a strong October Seasonal rally, and then a failure of that rally in early November. If it is truly a bear market, new lows are made in November or early December.
A break of support at 2580-2600 would likely augur for a retest of the February lows at 2530. A failure there, and the real bear market should unfold -- but perhaps not until early next year (December is normally a bullish month, even in bear markets).
Conversely, if $SPX were to climb above 2820, it would be a very bullish sign.
This week saw the ninth biggest one-day point gain in the $SPX in history, as it rose 58.44 points on Wednesday. With that, $SPX had rallied over 200 points in a straight up manner, since the lows just six trading days prior (a time period which included our October Seasonal rally). That is the power of an oversold rally. It may surprise you to know that all of 10 largest point moves in history (by $SPX) have been completely reversed within a matter of days or a few weeks.
On Wednesday, $SPX made a huge move to the upside, rising 58.44 points in a massive display of buy programs that lasted right into the closing bell. Is this the way the market behaves when it’s ready to launch higher, or it is a sign of merely oversold buying which leads to lower prices shortly thereafter? That was the 9 th largest point move in history. Of the other nine in the “top ten” of such moves, every single one retraced that gain – gave it all back – in a fairly short period of time. I was a bit amazed to see that, but if you think about it, the only time the market can rise like that is in response to a very oversold condition – which means the market was already in a downtrend to begin with. So, these large moves have proven to be only temporarily bullish.
