The main thing to keep in mind is that $SPX has not broken down below support at 2800. It was tested -- more or less -- once again yesterday and has held so far. A close below 2800 would be very negative from the viewpoint of the $SPX chart.
Overheard, the major resistance on the $SPX chart is the double top at the all-time highs. More than one bear market has started from a similar pattern.
Larry McMillan was recently interviewed by host Anthony Crudele for the Futures Radio Show. Larry discussed how he learned to trade options, technical analysis techniques, an S&P straddle trade, reasons to trade mult-leg positions and much more in this 40 minute interview.
The following table is a summary of the results, by strategy, showing the number of positions recommended in that category; the number of wins and losses, the win percentage rate, the total profit or loss in that category, and the average return at annual rate (the average return, annualized using the average holding period).
$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.
Supposedly because of the China trade talks, but probably as much because the market was overbought and tired. $SPX headed lower this week. Several support levels have since been violated, but not all of them. This could still turn out to be a minor correction if support at 2800 can hold. However, caution is certainly warranted at this time, as the burden of proof is now on the bulls. The most negative aspect is that there is a double top in place now.
The Fed announced that they weren't planning on cutting rates at this time. That was a "shock" to the media, but probably not so much to traders. In any case, $SPX sold off after that, causing some sell signals to be generated.
Several of our indicators generated sell signals at yesterday’s close – mBB, weighted equity-only put-call ratio, and both breadth oscillators. Stocks had been grinding higher in the morning yesterday, then after the FOMC Meeting, the market sold off, triggering these new sell signals. It appears that the first correction since the brief one in early March could be at hand.
$SPX made a new all-time closing high this week. The $SPX chart is strong and bullish, although the internals as represented by some of the other indicators are not nearly as strong.
There is support at 2890 and 2870, with major support at 2800. It seems to me that a break of 2870 support would be a problem.
The $SPX chart itself is fine. It is rising, with all trend lines moving higher, including the "modified Bollinger Bands." There should be support near 2850, and perhaps even near 2870. Our target all along has been the all-time highs at 2940 and it still is. Unless this market regains some momentum, though, it is going to meet stiff resistance there.
The “mistake” that the market often makes is getting too complacent during rally phases. One of the signs of complacency is extremely low volatility. Part of this is unavoidable as the calculation of historic volatility necessarily yields lower numbers as the market trades at higher prices. Furthermore, short-term implied volatility will not deviate too much from realized volatility, for there are quasi-arbitrage strategies that will be put in place, holding implied volatility down. Longer-term volatilities can remain higher though – not adhering to realized volatility, but normally trading more towards the long-term average volatility of the underlying.