After a strong upside breakout last week from the triangle formation (blue lines in Figure 1), the market has spent this week in a tight range. There has been an improvement in the indicators in general, but the most important indicator -- the price chart of $SPX -- has not really responded.
A clear breakdown and close below 2090 would be a short- term negative, likely calling for a retest of support at 2060. A breakout over 2115 and then 2135 would be very bullish.
The Standard & Poors Index ($SPX) broke out of the triangle that had formed on its chart (see Figure1), and that breakout was strongly on the upside. The bears had plenty of chances to violate the support at 2040 on a closing basis, but were unable to do so. So now we'll see if the bulls can do better with their chance.
The bears are now paying for their failure to seize control last week. Yesterday’s rally was strong and was assuredly due to a number of bears “throwing in the towel.” Yes, I know there was a favorable housing report, but that certainly wasn’t enough to justify a rally of that magnitude. So, can the bulls seize control? They have not been able to engineer a follow-through to strong up days, either. Today is their chance. S&P futures are up 6 points in overnight trading.
The chart of $SPX (Figure 1) shows a couple of things. First, the Index is in a downtrend. It has declined more than 80 points from the mid-April highs, at 2110. But the other fact that we can see from the chart is that $SPX still hasn't been able to close below 2040.
As a result, the two red lines make a triangle on the chart. Usually, a breakout from a formation like this is strong, but it can come in either direction.
The Standard & Poors 500 Index ($SPX) bounced strongly off of support at 2040 last Friday. That level remains strong support, with resistance at 2110.
Equity-only put-call ratios rolled over to sell signals last week, and while there was some flirtation with a new buy signal by the standard ratio (Figure 2), both of these put-call ratios are back on sell signals once again.
Bulls took charge early yesterday and kept the upward pressure on all day long. The strength of the rally changed the status of several indicators as well. So the 2040 area is reinforced as the major support level of $SPX once again. The brief probe below that level, for a few cents and for a few minutes last Friday, was not enough to qualify as a break of that support level. It’s unclear if the bears are going to get another chance for that breakout anytime soon.
A "stealth" correction has been underway for a couple of weeks. Most people would be mildly surprised to realize that $SPX has fallen more than 60 points from its recent highs near 2110, just over two weeks ago. The decline has been steady and unspectacular, accompanied by few actual sell signals. In other words, it's been a minor correction so far.
$SPX continues to display support at 2040, but a violation of that level would be bearish.
The market's momentum is slowing, but it hasn't necessarily reversed yet. The number of negative breadth days, and their intensity is increasing. The $SPX chart (Figure 1) also shows a waning of momentum, but even the first support level at 2070 has not been broken.
$SPX closed above 2100 this week for the first time since last December. The Index chart remains bullish, with support at 2070 and 2040. There is multitudinous resistance between 2100 and the all-time highs at 2135, but this market hasn't had problems with resistance so far.
Equity-only put-call ratios remain on buy signals, even though they are mostly just moving sideways recently.
Stocks are struggling to maintain the stupendous rally that began on February 11th. While there has been a slowing of momentum, the $SPX chart remains in an uptrend for now.
The equity-only put-call ratios are both on buy signals, although there was a flirtation with a sell signal from the standard ratio (Figure 2) during this past week.
