By Lawrence G. McMillan
It always seems that the first volatility explosion sends a warning shot across the bow. That appears to be the case now.
Tuesday's low for $SPX was at 1538. That is now a support area. Below that, there is support at 1530. A violation of that level would likely signal the onset of a deeper market correction.
Meanwhile, equity-only put-call ratios may continue to be befuddled by the hedging activity of put buying.
Market breadth (advances minus declines) has weakened this week, and both breadth oscillators are right on the verge of generating sell signals.
$VIX has had some big swings this week. Clearly, if $VIX exceeds 15.40, that would be bearish, but if not, then the buy signal in Figure 4 would be solidified.
In summary, this week's action (rising volatility and weakening breadth) has taken some of the steam away from the bulls, putting the bears right on the verge of taking control -- at least for a market correction. But so far, the bears haven't been able to do so.
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