By Lawrence G. McMillan
This past week saw further deterioration -- by the $SPX Index as well as the internal indicators. $SPX sold off, but then tried to snap back with a big rally on Thursday, but it is not all that convincing. But, in reality, the 100-point rally just seemed to be an oversold rally. It didn't even reach the declining 20-day Moving Average, much less challenge the downtrend (purple) line on the chart.
The rally did accomplish one thing, though: it pushed $SPX back up into that support area. So, technically there is still support there, or slightly below.
The market internals have been terrible. Specifically the "market internals" as far as our indicators go, are 1) equity-only put- call ratios, 2) breadth oscillators, and 3) New Highs vs. New Lows on the NYSE. All three are on sell signals and have been for some time. In some cases, they are approaching (deeply) oversold conditions, but that alone is not a buy signal.
But, just as the internal indicators have been bearish, the $VIX indicators have been bullish. That is a dichotomy that we don't often see, but it is certainly in effect right now. In fact, a new "spike peak" buy signal has been confirmed (green "B" on the chart in Figure 4).
So, there is a mixed picture: market internals are and have been negative, but $VIX traders are not worried as they remain bullish. $SPX is sitting right on support. A breakdown below 7560 would be negative, while a move above 7700 would be bullish. We are trading individual signals as they occur, and have exited some positions because the trading systems were stopped out. Meanwhile, continue to roll deeply in-the-money options.
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