Bears pushed prices lower all week, and the major trend of the $SPX chart is still downward (lower highs and lower lows, as denoted by the blue trend lines on the chart). However, most declines were halted before they got much momentum going. $SPX has found support in the general area of 3730 again, as it did at the end of June. The next support area is 3630 (the year-to-date lows). If that is violated, things could get ugly, with minor support at 3500, and then stronger support at 3200.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 20 on October 26, 1995.
Any spread that creates a debit in one's account, when it is established, is technically a debit spread. However, when the term "debit spread" is used, it generally connotes either a bull spread with calls or a bear spread with puts. These are types of vertical spreads, since all the options have the same expiration date but have different striking prices (credit spreads are vertical spreads also).
The blue downward trend lines on the $SPX chart (Figure 1) tell us that this is still a bear market (lower highs and lower lows). The halting rally that has taken place since mid-June has been pretty much of a disappointment so far.
There is support at 3740 (last week's lows) and then at 3630 (the year-to-date lows). As for resistance, the previous short-term rally failed at 3945, so that qualifies as resistance.
The latest attempt at an oversold rally appears to be over with very little to show for it. the rally barely reached the declining 20-day Moving Average of $SPX. Typically, oversold rallies overshoot that declining 20-day MA, so this was a particularly weak rally attempt.
The trend of $SPX is still downward, and the pattern of lower highs and lower lows continues to dominate the $SPX chart. In short, this is still a bear market.
The broad market made new lows for 2022 a week ago. That reaffirms the pattern of lower highs and lower lows on the $SPX chart, meaning that the bear market is still intact. There should some support at last week's lows, near 3650. Beyond that, one has to go to a longer-term chart to find support: 3500 and then 3200.