On Tuesday, May 1st, $SPX traded at 1415. Now, just 7 trading days later, the entire psyche of the market has become dark and brooding.
$SPX broke down through support at 1390 last Friday. But the crucial level is support at 1340, which has held so far.
Equity-only put-call ratios remain on sell signals. This has been the most bearish indicator all throughout this decline.
Breadth oscillators rolled over to sell signals on May 3rd -- a week ago. Since then they have moved into oversold territory.
Negative thinking has enveloped Wall Street in the last week. It’s rare to see to such obvious negative news reflect itself so directly in lower prices, but that’s what has happened in the last six trading days.
There has been a good deal of technical damage done in that short time, but oversold conditions are also emerging rapidly. Therefore there is still a chance that this is merely a correction in a bull market. Support levels are near at hand, though, and if they are broken, then a more significant bearish scenario could unfold.
Extremely heavy selling swamped the market in the early going on Tuesday. But at about 11:30am, a rally started that lasted most of the rest of the day. As a result, what might have been an extreme oversold day did not occur. Whether or not an extreme oversold day is required in order to put in a bottom, is unclear. But for now, the $SPX lows at 1347 are a support area, with support at 1340 below that. At least Tuesday’s lows took out the overnight lows from Sunday, so the day and night sessions are back in synch.
Earlier this week, a strong upside breakout was accompanied by generally positive technical indicators. But worries over the unemployment report have upset things somewhat. I'm not sure how the positive technicals got hijacked by the negative media and fundamentalist attitude about one economic number, but they did.
$SPX has pulled all the way back to the 1390 support level. There is resistance at 1415-1420 and support at 1358. The equity-only put-call ratios remain on sell signals. Breadth indicators have turned negative as well.
With last Thursday’s breakout to the upside by the Standard & Poors 500 Index over the 1,390 level, the technical indicators were mostly positive.
MORRISTOWN, N.J. (MarketWatch) — When the broad stock market, as measured by the Standard & Poor’s 500 Index, broke down through the important 1,390 support level in early April, it seemed that the bears would finally have their chance to take control after a long run by the bulls.
$SPX has essentially been trading sideways for about three weeks. The net result of this sideways action has been to relieve all of the overbought conditions that existed. Thus, the stage was set for another rally attempt if the bulls had the wherewithal to break out above 1390, a feat which they accomplished Thursday.
Market breadth has not been particularly strong until the last week or so. The breadth indicators are on buy signals.
The total put-call ratio includes all the volume that takes place on listed index and equity option markets (not futures). Most of the time it’s not of great interest, although we did publish a system utilizing it in extremely bearish markets. That system was designed to capture large moves, and its signals usually result in at least a 100-point gain in $SPX. The last signal of that sort was a successful one, with a buy issued last September 12th. The 100-point target was achieved on November 3rd.
The bears have had many chances this month to do some serious damage to the market but they haven’t been able to. Perhaps they are waiting for the “sell in May and go away” crowd to join them next month, but perhaps they just don’t have the firepower to drive the market down. Whatever it is, the indicators and the bulls are on the brink of pushing this market higher again.
The market gapped higher on what has become 'typical' Apple earnings euphoria. Durable goods orders came in below expectations. Meanwhile, the Fed has notified us interest rates will remain at their very low levels. Follow through after the open was short-lived, which was to be expected on a Fed day. What should also be expected is violent unpredictable swings throughout the rest of the day. Thus, we need to focus only on the recent major levels of support and resistance, roughly $SPX 1390 above and, for now, 1358 below.