Weekly Stock Market Commentary 4/21/2023

By Lawrence G. McMillan

Stocks are definitely having trouble with overhead resistance near 4200. This has been a resistance area since last August (it was a failed attempt to close the gap on the island reversal, noted by the circle on the chart in Figure 1). Then it halted the rally in February, and now it has seemingly halted the current rally. Thus, the $SPX chart is not bullish, in that there is not only the resistance at 4200, but resistance at 4300 as well.

As for support, there should be some in the 4050-4070 area, with further support below that in the 3970 area. A move below 3950, though, would be negative and should bring in heavier selling.

We are seeing overbought conditions in some of our indicators, but so far there have not been confirmed sell signals. For example, the equity-only put-call ratios are still on buy signals, but the weighted ratio is very near the bottom of its chart. That would place it in overbought territory.

Breadth has deteriorated (five of the last seven days have seen negative breadth), and so a sell signal is potentially setting up. Both breadth oscillators have generated sell signals, but we require further confirmation in the form of a second consecutive day (today). $VIX continues to decline. A big part of that, of course, is the deterioration in realized volatility.

The continuing decline in $VIX means that the trend of $VIX buy signal remains intact. It last went into effect inside the circle on the chart in Figure 4, when $VIX fell back below its 200-day Moving Average. This buy signal will remain in effect until $VIX rises back above its 200-day Moving Average, which is currently just above 23 and declining.

In summary, we are not carrying a "core" position, but we are trading positions in line with confirmed signals from our indicators.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.