The market closed out September at new lows for the year to date. Those new lows were accompanied by some massive oversold conditions. Seemingly, the turn of the calendar from September to October emboldened buyers, and they bought the market heavily on the first two trading days of October. In any case, this appears to be just another oversold rally, and those usually die out at about the declining 20-day Moving Average of $SPX (currently near 3800), or perhaps just a bit higher. This rally was accompanied by some confirmed buy signals, which we will review shortly. Thus, it might have a better prognosis, but the market has been unable to post any further gains since those two strong days.
Anyway, back to the current market situation: the fact that $SPX made a new low confirms that this is still a bear market (blue trend lines on the $SPX chart in Figure 1), if for no reason other than the fact that $SPX continues to make a series of lower highs and lower lows.
Near-term, there is resistance near 3800 (this week's highs) and then stronger resistance near 3900. As for support, the end-of- September lows at 3584 qualify as a support area. If that is violated, then one has to go back to late 2020 to find further support (3550?).
Equity-only put-call ratios (Figures 2 and 3) have rolled over, forming peaks on their charts, and that is enough to qualify these as new buy signals. That conclusion is confirmed by the computer programs we use to analyze these charts.
Market breadth has been violent in both directions, but the bottom line is that the breadth oscillators are both still on sell signals. Yes, they are in oversold territory, and the NYSE breadth oscillator did try to generate a buy signal for one day (October 4th), but both have fallen back and are negative at this time.
$VIX continues to remain in an uptrend, which is quite obvious when one looks at the chart now. But we were able to identify the emerging uptrend back on September 20th, when both $VIX and its 20-day Moving Average were above the 200-day MA (rightmost circle on the chart in Figure 4). An uptrend in $VIX is negative for the stock market.
We continue to recommend a "core" bearish position because of the downtrend in $SPX and the uptrend in $VIX. We are trading other confirmed signals around that "core" position.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.