Weekly Stock Market Commentary 4/27/18

By Lawrence G. McMillan

A week ago it seemed that $SPX had broken out of the "box" that had contained prices for nearly a month (red box in Figure 1) and was set to challenge some resistance levels. That came to an abrupt halt, and $SPX sold off more than 100 points in five trading days. But then, for the nth time, $SPX bounced off the 200-day moving average. A strong rally has ensued.

Even so, the downtrend line and the gap at 2750 represent significant obstacles to any intermediate-term rally. They must be overcome before one can upgrade the status of the $SPX chart.

On the downside, there is support at 2610, the point where this week's rally began. Below that, there is support at 2580 (the bottom of the "box"), and 2530 (the February lows). Violations of those areas would be very negative.

The equity-only put-call ratios are on buy signals. The weighted ratio is coming off 18-months highs, and from a deeply oversold condition.

Meanwhile, the breadth oscillators remain on sell signals. Despite weak breadth during the recent 100-point $SPX selloff, these breadth oscillators did not descend into oversold conditions.

Volatility indicators have been low and remain generally bullish. $VIX barely rose during the market's 100-point decline. A docile or sideways $VIX is generally bullish for stocks.

In summary, we are once again in a place where the individual indicators have a somewhat positive look, but the $SPX chart remains the largest bearish impediment. The downtrend line and the gap at 2750 must be overcome before one c2an turn intermediate-term bullish. And so far, those have been unattainable. Thus, we remain intermediate-term bearish, while allowing that yesterday's nascent rally could have some "legs."

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