Weekly Stock Market Commentary 4/29/2022

By Lawrence G. McMillan

The $SPX chart remains in a downtrend. Note the blue trend lines on the chart in Figure 1. Within that downtrend, action has been getting more and more volatile, which is much more typical of a bear market than a bull market. This past week, $SPX once again tested the support in the 4100 4200 area, and so far it has held.

This latest bout of selling has created a number of severely oversold conditions. Very few of them have resulted in confirmed buy signals yet, but they eventually will. Remember, though, that "oversold does not mean buy," for a bear market can decline swiftly even when it is already oversold.

Equity-only put-call ratios remain on sell signals. The most recent sell signals appeared rather abruptly a couple of weeks ago, but their timing was excellent. Now, they continue to race higher on their charts, as heavy put buying continues to accompany the declining $SPX.

Breadth has been extremely negative, and as a result both breadth oscillators ("stocks only" and NYSE) have been on sell signals since about a week ago. They have descended into deeply oversold territory, but it's going to take at least another day or two of positive breadth to generate buy signals from breadth.

The first new confirmed buy signal from an oversold condition has occurred, not surprisingly, from a $VIX "spike peak" buy signal. The new signal is marked with a green "B" on the chart in Figure 4.

Despite this "spike peak" buy signal, the trend of $VIX is still upward, and that is negative for stocks. This trend indicator is not likely to reverse course quickly.

In summary, we are maintaining a "core" bearish position, but we also realize that the massive oversold condition that exists could create yet another strong bear market rally. These rallies are ferocious and cause as much consternation for the bears as the declining periods cause for the bulls. So we will trade confirmed buy signals if and when they occur around the "core" bearish position.

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