The most positive thing one can say about the $SPX chart is that the major downtrend lines have been broken, and the gap at 2750 has been filled. Beyond that, the bulls have had to be satisfied with small gains but a failure to penetrate through the resistance at the March highs of 2800. A close above 2800 would be constructive for $SPX, and that should lead to an attempt to make new highs above 2870.
The island reversal gap on the $SPX chart was finally filled, at 2750, this past week. That moves the $SPX chart out of "bearish" status, but it is still badly lagging indices that have recently made new all-time highs, such as the NASDAQ Composite and the Russell 2000. Even so, this is a big improvement, for all of the other indicators have retained their bullish status as well.
Stocks just can't seem to get out of their own way. Both bulls and bears have failed to capitalize on what seemingly should have been opportunities. The bottom line is that the $SPX chart is stuck in a sideways trading range until proven otherwise, with resistance at 2750 and support at 2640.
The Standard & Poors 500 Index ($SPX) is now trapped in a very narrow range, between 2700 and 2740. A breakout above 2750 would be very positive, while a break DOWN below 2630 would be very negative. For most of the rest of the indicators, everything is bullish. But as subscribers know, $SPX is the most important indicator.
For example, the put-call ratios are solidly on buy signals as they continue to fall almost daily.
The market continues to act much better than it did in February through April. That positive intraday reversal on Thursday, May 3rd, still stands as the day that things changed. $SPX has been up most days since then, with only one large down day -- May 15th.
Having said that, the one indicator that is still not in synch on the bullish side is the $SPX chart itself. There is a problem in the 2750 area. Until $SPX closes above there, the chart will continue to have a bearish tint to it.
A week ago Thursday (May 3rd), the market was on its heels as a large day-long sell program had pushed $SPX below the 200- day Moving Average. A close below that MA would have signaled some dire things for the bulls, but then a reversal rally took hold and it hasn't let go yet. As of yesterday's close, $SPX had rallied 130 points from those intraday lows.
As it stands today, the “Short Volatility Trade” has been watered down to a great extent. Perhaps in an effort to get ahead of the regulators, most of the Exchange Traded Products (ETPs) that deal with “short volatility” have made adjustments so that their products are no longer as volatile as they had previously been.
By Lawrence G. McMillan
One of things I’ll always remember about the Crash of ‘87 (actually, I’ll always remember everything about the Crash of ‘87 – at least from my vantage point) was that the market was down on Wednesday, Thursday, and Friday of the week before, with Friday being the worst day. That Friday, October 16th, saw the Dow drop 110 points – the largest point drop in history up to that time. Of course, Monday was the Crash. On that Monday, the futures opened down about 20 points (roughly equivalent to 120 points today, by my estimate). So I learned to respect a market as being potentially extremely bearish if there is a big drop into a closing low on Friday. Another notable (bad) memory came in August, 2015, when $SPX opened down 100 points on Monday after an ugly close to the week before.
A week ago it seemed that $SPX had broken out of the "box" that had contained prices for nearly a month (red box in Figure 1) and was set to challenge some resistance levels. That came to an abrupt halt, and $SPX sold off more than 100 points in five trading days. But then, for the nth time, $SPX bounced off the 200-day moving average. A strong rally has ensued.
