By Lawrence G. McMillan
$SPX bounced off of strong support at 2800 on Tuesday, and then fell back from resistance at 2890-2900 on Thursday, so for now $SPX is in trading range between 2800 and 2900 (roughly). I don't expect that range to last long, and a breakout either way is probably going to gather momentum quickly.
Perhaps the most bearish indicators in our arsenal at the current time are the equity-only put-call ratios (Figures 2 and 3). Put volume has been heavy all week, despite the 90-point rally off the 2800 level. As a result, these ratios are racing higher, and that is bearish for stocks.
Market breadth has jumped around madly. When the market sold off, the breadth oscillators plunged and the "stocks only" breadth oscillator descended into official oversold territory. It has since recovered and issued a buy signal, which is still in place.
Volatility remains in its own world. First of all, $VIX produced a "spike peak" buy signal. But a longer-term look might be a little more problematic, as $VIX is in an uptrend at this time.
In summary, there are arguments that can be made for both bullish and bearish scenarios. It will likely be settled by price action, as alway. A move above 2900 or below 2800 should accelerate momentum in the direction of the breakout.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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