The broad stock market has strongly reversed upward over the past 48 hours. Tuesday night, in overnight Globex trading, the S&P futures were trading at 4320. This morning, they are at 4460. That's a pretty big increase in 48 hours.
Sentiment is changing nearly daily, producing wide swings in $SPX. But the Index is still in a downtrend, with lower highs and lower lows on its chart (blue lines in Figure 1). The lower end of the range is just below 4300, as there were several rather strong reversals from that area in the past week. On the upside, there is resistance up to 4465. A broader view shows three support areas (horizontal red lines in Figure 1) at 4233, 4160, and 4060 and, of course, resistance at the all-time highs (4545).
As is often the case, September turned out to be a bearish month, as $SPX made a new all-time high on the 2nd trading day of the month, but then reversed and traded down to the lows of the month on the last trading day. This action has put the $SPX chart in a downtrend, as there are now lower highs and lower lows (on a closing basis). A move below the mid-month low at 4305 would confirm this bearishness. We now enter October, which has a reputation as a "bear killer," but the first part of the month can be ugly before lows are reached later in the month.
$SPX broke down on Monday, September 20th, violating several support levels, including the very important one at 4370. A gap was left on the chart at 4430. In a truly bearish environment, further selling would have followed. Instead $SPX has risen, filled the gap, and closed back above 4430. In addition, several buy signals were registered (although to be fair, there are still some lingering sell signals as well).
A McMillan Spike-Peak Index Buy Signal was registered yesterday, while a McMillan Volatility Bands Buy Signal just hit today. This last occurred on 3/26/20, near the March 2020 lows. As encouraging as this is, a close above $SPX 4430 would still be necessary for bulls to take charge of the short and intermediate term.
As is so often the case, everyone wants to sell at once. That happened yesterday, with $SPX down 127 points at one time. But it rallied strongly after 3:15pm, and continued to rally overnight. We’ve seen this story before: the one day wonder bear market followed by another month of rising prices. Somehow, that seems all too convenient, but it could be happening again. Let’s work through the indicators, which are all over the place at this time.