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By Lawrence G. McMillan

The trading range environment for $SPX is still in place. The horizontal lines on the chart in Figure 1 depict the extent of the three most prominent ranges that are in place right now. Most recently, the tightest range is 4100-4200. A slightly wider range, 4050-4200, exists if one extends back into April. Then the larger range, roughly 3800-4200 encompasses all of 2023 and even the last part of 2022. Of course, 4200 is the top of all of these ranges. One can be sure that aggressive traders have been and will continue to short the market at 4200. If it eventually breaks out to the upside, there will likely be some heavy short covering to accompany that move.

The fundamental background, from the negativity of the debt ceiling and T-Bill rates, to the positivity of tech stocks, has generated a considerable amount of uncertainty in the market. That's why we're stuck in a trading range on $SPX. This uncertainty is showing up in a number of the indicators as well. For example, the equity-only put-call ratios have been somewhat at odds. The standard ratio rolled over to a buy signal (see Figure2) a little over a week ago, and that ratio has been steadily declining ever since. The weighted ratio, however, is much lower on its chart, and while it has been drifting lower, it has been more of a grudging decline. Only yesterday did the "count" verify a buy signal from the weighted ratio, and even there the computer analysis programs are not giving it a full-fledged buy signal certification.

Breadth has been much more negative than $SPX. Breadth has been negative on four of the last five days including the day that $SPX rallied in response to the big jump in the price of NVDA. That decline in breadth not only canceled out its recent breadth oscillator buy signals, but threw those oscillators back into oversold territory. Of course, from here a buy signal will eventually emerge, but given the whipsaw nature of these breadth oscillators (recently, even more than usual), these are difficult to rely on.

The one area that has remained steadfastly bullish is implied volatility -- $VIX and its derivatives. The "spike peak" buy signal of early May remains in place. Meanwhile, the trend of $VIX buy signal remains in place. It would be stopped out by a $VIX rise above its 200-day Moving Average, which is currently at 22.30 and declining.

In summary, the indicators are mixed, and $SPX locked into a trading range. As a result, we are not carrying a "core" position at this time, but we will trade individual indicators if they give confirmed signals.

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

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