The volatile moves this week have given rise to a number of new trading signals. Since some are in conflict with others, one has to make a choice as to how to approach them.
$SPX sold off sharply and recovered sharply and is now more or less where it was just over a week ago. An $SPX close above 1695 would likely pave the way for another attempt at the all-time highs of 1730, which is also resistance.
...The speed of this market is being accurately reflected in our indicators, I believe. What seemed to be an extremely bearish environment just a couple of days ago, now appears ready to reverse to buy signals in at least some areas. Since the equity-only put-call ratios remain on sell signals, it does not appear that an overall “all clear” will be sounded, but there is upside potential in these short-term buy signals – should they be confirmed...
The broad market is rather schizophrenic right now. On Friday, the prevailing attitude seemed to be “I better buy now before Congress settles this thing and the market explodes.” On Monday, it was more like “I better sell now, because I’ll be able to buy later as this thing drags on” (“This thing” being the Congressional deadlock over the budget and the debt ceiling).
The market is getting more volatile and bearish as the combined pressures weigh upon it. These include the Congressional wranglings, the negative seasonality of early October, and the technical deterioration of our indicators.
The Standard & Poors 500 Index ($SPX) has support at 1660-1670 and at 1630 below that. There is resistance at 1730.
$SPX now has resistance at the mid-September highs of 1730. There is support at 1680, 1660, and then at the August lows of 1630. This week, $SPX generated a sell signal, based on a recent overbought condition.That is one of the few confirmed sell signals.
$SPX exploded to the upside after the Fed's announcement that they were not going to taper, with both new buying and short covering entering into the fray. With $SPX now at new all-time highs, it has positive momentum, but is also extremely overbought. This latter condition will eventually lead to some sell signals, but perhaps not right away.
The Fed’s announcement that they were not going to taper was a big sigh of relief for many traders, and the resulting buying explosion was powerful. Short covering was certainly prevalent as well. $SPX and other major indices blasted through to new all-time highs. In doing so, there were a number of overbought conditions that were triggered, but on such a powerful breakout, an overbought condition is actually conducive to higher prices – for a while.
$SPX made a strong upside push this week and that closed the downside gap from nearly a month ago. That officially terminated the "bearish" status of the $SPX chart. It's hard to say that the chart has turned bullish, though, since there is still overhead resistance at 1700- 1710. Underneath, there is support at 1660 and then stronger support at 1630-1640.
Stocks gapped higher on the open yesterday and just kept going higher all day. $SPX has now closed above its declining 20-day moving average for the first since the market topped out just over a month ago. Oversold rallies – which this still may proved to be (although it seemed stronger than that on Monday) – usually die out at about this level: just beyond the declining 20-day moving average. Chart-wise, $SPX is now at the 1670 resistance area.
At this point, the $SPX chart is still bearish, because it has a sequence of lower highs and lower hows.
The equity-only put-call ratios continue to remain on sell signals. The weighted ratio continues to move higher almost every day, thus confirming its bearishness.
Market breadth is the lone positive area right now. Both breadth indicators improved enough this week to generate buy signals.
