Free Weekly Stock Market Commentary 4/19/2024

By Lawrence G. McMillan

For quite some time the $SPX chart has been able to rely on support at 5050. The market traded in an area between 5050 and 5180 for nearly a month from mid-February through mid-March. But now that 5050 level has been breached, and selling has intensified. The fact that $SPX was trying to hold that 5050 level for several days means that it has now become resistance. There are other resistance levels at 5150 and 5260, the all-time highs.

As for support, there is some just above 4900, but the major support is at 4800 (the top of the 2022 bear market and an area which provided resistance last December and January).

Equity-only put-call ratios have continued to rise all week, as the market has sold off. These sell signals for the stock market, which had been rather wishy-washy at first, have solidified. The fact that these sell signals emanated from extremely low (i.e., overbought) levels on their charts, should indicate that these will be strong sell signals. These ratios will remain bearish for stocks until they roll over and begin to trend lower.

Market breadth has been extremely poor. Declines have outpaced Advances every day this week (see the Table on Page 1). Thus, the breadth oscillators remain on sell signals, although they are in deeply oversold territory. However, the market can decline sharply while oversold conditions persist, which is why "oversold does not mean buy." Even if there are a couple of days of positive breadth, that might not be enough to roll these oscillators over to buy signals.

$VIX is presenting us with some very interesting data for the first time in a while. Not only that, but there is some conflict between the major $VIX signals. A "spike peak" buy signal would occur when $VIX closes at least 3.00 points its highest price reached during this most recent spike. So, that's the good news.

The bad news is that a trend of $VIX sell signal has occurred. That took place at the close of trading on April 17th, when the 20-day Moving Average of $VIX crossed above the 200-day Moving Average (and $VIX was above the 200- day MA, too). It is shown in the circle in Figure 4. These are often intermediate-term signals.

So, in summary, we are no longer holding a "core" bullish position. In the past couple of weeks, we have taken some bearish positions in line with confirmed sell signals. Moreover, since $SPX closed below 5050 for two consecutive days, we bought a bear spread based on that breakdown. That is now our "core" bearish position. We will continue to trade confirmed signals as they appear.