By Lawrence G. McMillan
$SPX has risen for eight days in a row and is off to a positive start today, which would make it nine. This type of action has been accompanied by buy signals from breadth, equity-only put-call ratios, and MVB — not to mention short-term buy signals such as “$VIX crossover” and “oscillator differential.” Still, as impressive as all that is, the $SPX chart is still bearish because it’s still in a potential downtrend.
Yes, $SPX has penetrated through the steep downtrend line that connected the February and March highs (see figure 1), but it is now approaching its declining 200-day Moving Average at 5750 plus other general resistance in the 5600-5700 area. If it were to turn back down from here, then the pattern of lower highs would still be in place just with less slope to the downtrend line.
However, a close above 5800 would be quite bullish and would remove this negativity from the $SPX chart.
There is support at 5300 (where there is a gap on the chart circled in Figure 1). Further support exists at 5100 and 4850-4950. This week’s lows at 5433 could also be considered a lesser support area.
Equity-only put-call ratios are finally in agreement on buy signals. Both ratios have rolled over and are trending lower now.
Breadth has been extremely positive, and the breadth oscillators remain on buy signals. They are deeply in overbought territory which is a good thing when $SPX is trying to establish a new upward leg.
Meanwhile, $VIX continues to decline as this broad stock market rally persists. Some might say that $VIX is declining “grudgingly.” Note how fast it returned to the 200-day Moving Average last August compared with now (Figure 4).
In any case, the decline in $VIX means that the “spike peak” buy signal from April 7th continues to be in effect. Simultaneously, though, the trend of $VIX sell signal remains in place as well, since $VIX is still above its 200-day Moving Average.
In summary, most of the indicators are bullish, but the chart of $SPX has yet to agree. We’ve seen similar situations in the past, and normally it’s the chart of $SPX that is eventually correct. So, we are still maintaining a low-delta “core” bearish position, while trading the other signals around that. Be sure to continue to roll deeply in-the-money positions.
