Weekly Stock Market Commentary 8/11/2023

By Lawrence G. McMillan

The $SPX Index has started a downtrend, from the recent highs just above 4600. This decline began with overbought conditions providing headwinds and then accelerated when Fitch downgraded the U.S. debt rating. That 4600 area represents resistance, and the next support area is at 4440 which would close several gaps on the $SPX chart. A pullback to that level is taking place now. Below there, support at 4330 is crucial. If that is violated, in my opinion, it would be quite bearish for stocks, even though there is another support level at 4200.

Equity-only put-call ratios remain solidly on sell signals. They have begun to rise even more rapidly now, and it looks like they won't be falling back to a new 2023 low anytime soon. This means that they will remain on sell signals as long as they are rising.

Breadth has been relatively poor, and the breadth oscillators remain on the sell signals that were generated on August 2nd. This is about the least whipsaw we've seen from the breadth oscillators in quite some time, so that seems to be a good thing. The oscillators are modestly in negative territory, but are not oversold yet.

$VIX has risen slightly while $SPX has sold off over the last week or so. $VIX is in "spiking" mode, as of August 4th. Stocks can fall while $VIX is in "spiking" mode, but eventually a "spike peak" buy signal will occur. That buy signal has not occurred yet.

So, we are maintaining a "core" bullish position (albeit with a small delta now that the market has pulled back), as long as $SPX remains above 4330. We are, however, trading other signals around that core position when those signals are confirmed.