Weekly Stock Market Commentary 2/11/2022

By Lawrence G. McMillan

The oversold conditions that had existed at the end of January led to a strong oversold rally. $SPX gained over 350 points in just under two weeks. But that rally failed as $SPX reached its declining 20- day Moving Average, and the Index is now on the defensive again. The downtrend line on the chart in Figure 1, and the declining trend lines ("modified Bollinger Bands" and 20-day Moving Average), are indicative of a bearish trend in $SPX.

There is support near 4450 -- the lows of last week and also the location of the still-rising 200-day Moving Average. The next important support level below that is in the 4200-4300 area, which if taken out will likely set off sharper downside action towards the next support level at 4000.

The equity-only put-call ratios remain on sell signals, somewhat surprisingly. They made new relative highs yesterday and would have to roll over and top out in order to generate buy signals. Frankly, I was surprised to see these ratios jump to new relative highs, but this is exactly why one must observe the data and not try to anticipate signals.

Market breadth has been excessive in both directions, and after the very negative breadth day on February 10th, the "stocks only" breadth oscillator has generated new sell signal. The NYSE breadth oscillator is still clinging to a buy signal at this time.

$VIX jumped sharply higher on February 10th (almost 4 points), and that was enough to return $VIX to a "spiking" mode and to stop out the previous "spike peak" buy signal. This sets up a new suy signal down the road, when $VIX completes its next "spike peak."

The overall picture requires a cautious, or even bearish, stance as long $SPX is in a downtrend and $VIX is in an uptrend. Individual indicator's signals can be traded around that position, but if this is truly a bear market, it will be difficult to navigate. Both bulls and bears are hard-pressed to make money in bear markets.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.