By Lawrence G. McMillan
The media seems to think that everything that is wrong with the market and the economy is due to the military conflict, but that is not the case. $SPX is in a bear market and will continue to be as long as the downtrend exists (see the blue line in Figure 1). However, the action on February 24th exacerbated an already oversold condition, and now another oversold rally seems to be taking place.
We can still say there is support in the 4200-4300 area. As for resistance, there is likely to be some near the 200-day MA (which is still rising, by the way), and then there is stronger resistance at 4600. A close above 4600 would be very bullish and would likely lead to a change of the "core" bearish outlook.
Equity-only put-call ratios have rolled over to buy signals with both being confirmed by our computer analysis programs. These ratios have not exactly plunged from these levels, but they have apparently topped out.
Market breadth has been awful, as one might surmise. Currently, both breadth oscillators are on sell signals and are in deeply oversold territory. That oversold condition is a precursor to an eventual buy signal, of course, but it's going to take some work to get there.
Another "spike peak" took place on February 24th. So that new buy signal is in place. But other aspects of $VIX and its derivatives are not bullish. The trend of $VIX remains upward.
The bottom line is that $SPX is trending down and $VIX is trending up. That alone is reason to be carrying a "core" bearish position. Yes, there are oversold conditions, some of which are producing buy signals, so they can be traded around that "core" position.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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