The $SPX chart itself is fine. It is rising, with all trend lines moving higher, including the "modified Bollinger Bands." There should be support near 2850, and perhaps even near 2870. Our target all along has been the all-time highs at 2940 and it still is. Unless this market regains some momentum, though, it is going to meet stiff resistance there.
The “mistake” that the market often makes is getting too complacent during rally phases. One of the signs of complacency is extremely low volatility. Part of this is unavoidable as the calculation of historic volatility necessarily yields lower numbers as the market trades at higher prices. Furthermore, short-term implied volatility will not deviate too much from realized volatility, for there are quasi-arbitrage strategies that will be put in place, holding implied volatility down. Longer-term volatilities can remain higher though – not adhering to realized volatility, but normally trading more towards the long-term average volatility of the underlying.
Overall, the $SPX chart is bullish. The trend lines and Bands are all moving higher (even the 200-day Moving Average is edging higher), and the only resistance area of significance is that at the all- time highs -- which should be the next stop.
On Monday of this week (April 1st), $SPX resoundingly broke out to the upside, clearing the 2860 resistance level. That breakout also improved both the put-call ratios and the breadth oscillators, which acts as further confirmation of the bullishness that is being exhibited right now.
As it stands now, $SPX is in a trading range between those extremes of the past week: 2785 to 2860. Indicators have become mixed during this pullback, so probably the best indicator will be price action itself. That is, follow a breakout above 2860 or a breakdown below 2785 as the impetus for the next directional move.
Finally, $SPX has broken out over the heavy resistance at 2820. The breakout wasn't as resounding as expected, and we are in the process of retesting the breakout zone (2800 is the low end of the zone). A close back below that level would be very negative at this time.
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.