By Lawrence G. McMillan
After two horrendous days on October 10th and 11th, the market experienced a solid oversold bounce. Some buy signals were even generated from that bounce, but now it seems to be failing again without having fulfilled even the most basic target of an oversold rally -- the declining 20-day moving average of $SPX. That may still happen, of course, but for now there is resistance at 2820 (the highs of this week). Support is at 2710.
Equity-only put-call ratios remain on sell signals. They continue to climb as put volume was very heavy again on most days this past week.
Market breadth was abysmal on the decline a week ago, and it has not improved all that much this week. There was a "90% up day" on October 16th -- the first one in a couple of years. But the breadth oscillator was never able to roll over to a buy signal. It remains deeply oversold.
$VIX fell back this week, which is somewhat bullish, but it is also in an uptrend, which is intermediate-term bearish for stocks. $VIX would have to close back below 15 in order to turn completely bullish on stocks again.
In summary, the bulls are having a little more trouble with this current decline than they had anticipated. Right now, it would be quite bearish if $SPX made new lows and would be bullish if it rose above 2820. In between, expect "noisy" action.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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