Weekly Stock Market Commentary 5/5/2023

By Lawrence G. McMillan

Stocks are still stuck in a trading range. The wider range has its lows in the 3760-3850 area (the lows of both December and March). The narrower, more recent range has its lows in the 4050-4070 area. That was just touched yesterday, but appears to be holding at this time. On the upside, resistance at 4200 is strong and has a lid on this market for now. Above there, the highs of last August at 4300 make for further resistance.

Bulls are seeing the positive force of big tech earnings, and bears are concerned with inflation and interest rates. The two factions have created this trading range that we are in.

Equity-only put-call ratios continue to remain on sell signals. That is, they are continuing to rise. As long as that is the case, these sell signals will remain in place. The weighted signal (Figure 3) is coming from the lower (i.e., overbought) section of its chart, while the standard signal (Figure 2) is not. This has been the case for a while now, but these signals have been effective.

Breadth has mostly been negative, with the exception of two very strong days on April 27th and 28th. The net result of this action has been that the breadth oscillators have whipsawed once again, but at the current time they are in oversold territory. The market is rallying today (May 5th) so buy signals may be forthcoming early next week.

One set of indicators is in its own world: indicators related to $VIX and its derivatives. $VIX edged higher this week (finally) and just barely reached "spiking mode," as of the close on May 4th. The stock market can fall sharply while $VIX is in "spiking" mode, but eventually a $VIX "spike peak" buy signal will occur. It appears that such a buy signal has a strong chance of confirming, perhaps as soon as today. Meanwhile, the trend of $VIX buy signal remains in place, since $VIX would have to close above its declining 200-day Moving Average (currently just below 23) in order to stop that out.

We are not maintaining a "core" position as long as $SPX continues to trade in this trading range. We are trading individual indicator signals as they occur.

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