$SPX has pulled back from its late-March rally, and in doing so raised the possibility that the bear market is still in force, but the jury is still out on that. The intermediate-term trend still appears to be down (blue lines on the accompanying chart). Shorter-term activity, however, shows a more positive bias in that the "modified Bollinger Bands" (mBB) are now moving higher. Realized volatility has begun to shrink modestly, and the Bands are pulling closer together.
A week ago, it appeared that $SPX had a chance to challenge its old highs. But subsequently selling has dashed those hopes at least temporarily, and now the question is whether support near 4420 will hold. A move above 4637 (last week's highs) would justify a bullish stance, while a move below 4420 would justify a bearish stance.
The oversold rally that began in mid-March continued strongly through March 29th. That day, $SPX gapped up over double resistance at 4600, and showed strong internals. But then, in a somewhat diabolical way, $SPX turned south again, showing terrible internals and plunged sharply back below 4600 as the first quarter of 2022 came to a close. If that was a false upside breakout, it was one of the bear market's best tricks.
The market has staged a ferocious oversold rally. Bear market rallies always look great until they fail. This rally has now reached the upper side of the downtrend channel (blue lines in Figure 1). Of course, it is always possible that this is the real thing i.e., a market bottom -- and not an oversold rally. In my opinion, the difference- maker will be if $SPX can close above 4600.
Stocks continue to struggle. The downtrend of $SPX is quite evident in Figure 1, and as long as that Index is in a downtrend, a "core" bearish position can be maintained. $SPX made a new closing low this week, as it probed down towards 4100 once again. The general area of 4100 4200 still represents near-term support. Below that, the next support area (red horizontal line on chart) is at the highs of about a year ago, just below 4000.
The chart of $SPX is bearish, with lower highs and lower lows. That is the most important thing to take away from Figure 1. After spiking sharply lower a week ago, $SPX has engineered another oversold rally. In a bear market, those are often swift but usually die out at or just above the declining 20-day Moving Average. It would take a clear breakout over the resistance at 4600 in order to re-establish a bullish trend for the $SPX chart.
The media seems to think that everything that is wrong with the market and the economy is due to the military conflict, but that is not the case. $SPX is in a bear market and will continue to be as long as the downtrend exists (see the blue line in Figure 1). However, the action on February 24th exacerbated an already oversold condition, and now another oversold rally seems to be taking place.
The tensions regarding a potential Russian armed invasion of Ukraine have caused some wider than usual swings in the market, but the underlying causes of the bearish action on the stock market are far greater than this potential conflict.
$SPX remains in a downtrend (see blue line on the chart in Figure 1), and that is what makes the chart bearish. The fact that the various short-term moving averages and the "modified Bollinger Bands" are all sloping downwards only adds to the bearishness.
The oversold conditions that had existed at the end of January led to a strong oversold rally. $SPX gained over 350 points in just under two weeks. But that rally failed as $SPX reached its declining 20- day Moving Average, and the Index is now on the defensive again. The downtrend line on the chart in Figure 1, and the declining trend lines ("modified Bollinger Bands" and 20-day Moving Average), are indicative of a bearish trend in $SPX.
