Well, the market finally found something it couldn't shake off -- at least not right away -- on the geopolitical front. Normally, this wouldn't be a big deal, but an overbought, somewhat nervous market can react to this type of news dramatically, and it did. So what is the real overall effect?
For the first time in a while, some sell signals are beginning to creep into our indicators, and the broad stock market is selling off. So far, the damage has been controlled, but Thursday's sharply down opening shows that there is the potential for some heavy selling if there is perceived danger. $SPX has support at 1950 and 1925, and even at 1900 below that.
Equity-only put-call ratios are in agreement, and they are both on sell signals.
$SPX is once again making new all-time highs. $SPX now has support at or near the 1950 area, which was the low of the most recent "correction." Below that there is support at 1925, where $SPX bottomed last week. The major support is at 1900, where a lot of work was done between March and May.
There is support for $SPX at or just below 1950. In addition, there is support at 1925 (the lows from a couple of weeks ago), and then there is major support at 1900.
The one deteriorating area among our main indicators is the equity-only put-call ratios. Both have started to rise over the past three days, and the weighted ratio is now officially on a sell signal.
As far as the $SPX chart is concerned, it has support at 1900. In fact, there is really support all the way down to 1860. A close below 1860 would change things, turning the chart to a bearish state if that were to happen.
Equity-only put-call ratios remain on buy signals. The standard ratio (chart, Figure 2) finally got in synch with the weighted ratio and issued a buy signal a couple of weeks ago.
The market is tired and overbought, but even so it managed to claw its was back yesterday afternoon, reducing the losses to mere fractions. As a result, the indicators closed in their previous bullish states. However, today there is some selling. Ostensibly this is because of a negative World Bank growth forecast. But in reality, plenty of people see the overbought condition and are looking for an excuse to sell. We would rather wait for actual sell signals.
If there were any doubts about the validity of the breakout to new all- time highs, they should be satisfied by now. $SPX has support at 1900, and then all the way down to 1860.
The equity-only put-call ratios remain on buy signals. The standard ratio had been lagging, but finally moved into the bullish column last week, joining the weighted ratio.
Market breadth was on the verge of sell signals this week, but they did not occur. So, both breadth oscillators remain on buy signals.
The broad market, as measured by the Standard & Poors 500 Index ($SPX) and other indices, has broken out to new all-time highs again. This time, the breakout quickly extended with a strong second day, and today added even more distance. This has turned the $SPX chart bullish.
The stock market is proving to be frustrating to both bulls and bears. Despite chances for each, neither camp has been able to take control. The resistance level at 1900 for $SPX has thwarted the bulls, despite making marginal new all-time highs early last week. Conversely, the bears have had a couple of strong down days, but they have not been able to break $SPX down below support at 1860.
...Equity-only put-call ratios continue to remain split, with the standard on a sell, and the weighted on a buy. We plan to delve into why this is happening – in an article in this week’s Option Strategist newsletter – but the short answer is that traders are buying out-of-the-money, low-priced puts for protection.
