Weekly Stock Market Commentary 10/20/2023

By Lawrence G. McMillan

The simple fact is that the chart of $SPX is still in a downtrend. The pattern of lower highs and lower lows is still quite obvious on the chart, but I've drawn some red lines in Figure 1 to denote them as well. There were oversold rally attempts and even some buy signals, but so far the rally that began with a bounce off of the 4200 level as well as off of the rising 200-day Moving Average of $SPX, can be classified as a mere oversold rally. It reached the declining 20-day Moving Average and a little more, but that was it. That is a typical target for an oversold rally.

$SPX traded between 4330 and 4380 for six days, but has now broken down below that level. The upside targets that we had established for determination of whether this was a strong rally were not met. The first one was a closing of the gap on the $SPX chart (circled area in Figure 1). That would require $SPX to rally to 4401.60. Next would be a challenge of the downtrend line, which is currently at about 4430. I don't really think it's even meaningful to discuss further resistance areas above that, until these two are met.

There is support at 4200 and at the rising 200-day Moving Average is near there as well. They provided good support in early October, and we may be in the process of testing that support again.

Equity-only put-call ratios continue to be mixed. The standard ratio is on a buy (Figure 2), but the weighted ratio (Figure 3) and the Total put-call ratio (not shown) are making new relative highs, which means that they are still on sell signals. Clearly, that has been the correct call so far. They would need to roll over and begin to trend lower before buy signals could be signaled.

Breadth has been all over the place. From the Table on Page 1, one can see that just recently there have days in which at least 3,000 issues were on both sides advances and then declines. The last two days, they have been on the declining side of the ledger. As a result, two potential buy signals from the breadth oscillators have been registered and then almost immediately canceled out.

Even the "almost always bullish" volatility complex is beginning to show some signs of bearishness. First, the recent $VIX "spike peak" buy signal was stopped out.

However, that's not the only problem on the $VIX chart. A new trend of $VIX sell signal is now in place. It is marked by the circle on the right-hand side of the chart in Figure 4. That signal was confirmed when both $VIX and its 20-day Moving Average crossed above the 200-day MA.

We continue to maintain a "core" bearish position because of the downtrend on the $SPX chart. Moreover, many of the other indicators are generating signals, so we will trade those around the "core" position.