SPX Through 12-11-09

Our breadth oscillators have given six separate sell signals over the last month, as $SPX has been unable to break out on the upside. That is certainly a negative sign, and those sell signals remain in place today.

Equity-only put-call ratios have been unreliable ever since heavy hedging activity began last summer. That activity seems to be abating now, so we are tentatively looking to use the equity-only ratios as trustworthy market indicators again. They, too (like breadth) have generated sell signals this week.

VIX Through 12-11-09

In summary, both bulls and bears are frustrated — and will likely remain so until a breakout occurs.

SPX Through 11-20-09

From an intermediate-term point of view, the $SPX chart remains bullish because the uptrend line connecting the major lows is intact and still rising. Furthermore, the series of higher lows is still intact.

Market breadth has given another sell signal — the third one since November 10th. These repeated sell signals are a sign of the deterioration in the overall market. These sorts of things can persist as tops are “rounding” affairs.

The equity-only put-call ratios have still not completely shaken off the effects of the massive put hedging purchases that have taken place since July, 2009. These ratios have remained in very tight ranges over the past couple of months.

VIX Through 11-20-09

In summary, the $SPX chart is intermediate-term bullish as are the volatility indicators, but a close below 1080 would be short-term negative — likely signaling the next correction, as confirmed by the sell signals in the breadth oscillators.

SPX Through 11-13-09

A breakout above 1100 would be bullish, and could probably propel prices to the 1150 level without much trouble. However, a failure at 1100 means that support areas would be important. There is support at 1160-1170, near the 20-day moving average, and then below that at 1030, the late October lows, followed by 1020, the early October lows.

There are now breadth sell signals as of today’s failure at 1100. Also, there is a matter of negative divergence: breadth rose to much higher levels when $SPX first visited 1100 a month ago.

VIX Through 11-13-09

In summary, the intermediate-term trend of the $SPX chart continues to be bullish. However, there are several potential short- term negatives which mean that another correction could be about to emerge. A close above $SPX 1100, however, would essentially end bearish thoughts.

SPX Through 10-9-09

Weighted Equity Only Put Call Ratio Through 10-9-09

VIX Through 10-9-09

In summary, we continue to view the market as neutral to positive. An $SPX close above 1080 would be bullish confirmation, likely setting off another run to the upside — perhaps to the next resistance area near 1120.

SPX Through 10-2-09

For the first time since the July lows, $SPX has etched a lower high, lower low pattern. This might not be the start of a serious downtrend, but it is certainly a “warning shot” of sorts. On the first trading day of September, the market plunged and then rallied strongly. The bulls hope that will happen again here in October, but the technicals are not as favorable now as they were a month ago.

As far as the $SPX chart is concerned, there are several levels of support which are important. The first level is where $SPX is right now — at 1030. That is where the market topped in August. Below that, there should also be support at 1010, and then 980-990, at the August and September lows. As for resistance, the major resistance is the 1070 level. Any close above there would put the market back in full bullish mode.

Equity Only Weighted Put Call Ratio Through 10-2-09

The equity-only put-call ratios remain on sell signals. Market breadth has been very strong all along since March, but has now turned negative,as declines have outnumbered advances on 7 of the last 9 trading days. As a result, sell signals have been registered.

VIX Through 10-2-09

In summary, a correction is underway, and it is minor so far (40 $SPX points). So far, indicators have reacted modestly to the decline, as they are expected to do. However, if $SPX 1010 is violated, and if $VIX continues to trend higher, then a more bearish outlook would be warranted. On a more positive note, if $SPX holds at support and perhaps true buy signals are generated by the breadth indicators, then the bulls would assume control once again.

SPX Through 9-25-09

Wednesday’s downside market reversal, coming as it did on the heels of a post-FOMC stock market rally, has caused the bears to become empowered and has seemingly converted quite a few people to the bearish camp in a blink. Little did we know that technical analysis was so in favor!

So, has “the” correction begun? Anything is possible, of course, but there is still plenty of upward price momentum in $SPX. It remains above the trend line that connects the March and July lows. There is support at 1040-1045, the area from which $SPX broke out in July. The rising 20-day moving average is at 1040 as well. So a close below 1040 would be negative, but the major trend line is what truly demarcates this bullish phase, and it is currently near 1000. The equity-only put-call ratios continue to rise. Technically, they are thus on sell signals.

Market breadth has been very strong, keeping the breadth indicators in overbought territory. Today’s negative action, however, has pushed the oscillator down to the brink of sell signals. Previous breadth sell signals during this rally have not been particularly meaningful, as all corrections have been short-lived.

VIX Through 9-25-09

Volatility indices ($VIX and $VXO) both made yearly lows Wednesday morning, before the market reversed downward. The $VIX chart remains in a downtrend and is thus bullish for the broad stock market. A close above 27 by $VIX would break the downtrend, but the four similar previous such occurrences this year have not resulted in a rising trend in $VIX — and that is the only way that $VIX would turn negative.

In summary, a seemingly large number of people have quickly turned bearish with Wednesday’s negative market reversal. However, unless we see some signs of intermediate-term sell signals — most noticeably a break of support in $SPX and a confirmed rising trend in $VIX — we will not be joining the bearish throng.

SPX Through 18 Sept 2009

The breakout to the upside this week was virtually a “melt-up,” as stock and option volume were extraordinary. I have never seen speculative statistics such as were generated from Wednesday’s trading. In one of our daily newsletters, Daily Volume Alerts, we noted that on Wednesday over 370 stocks traded double their average option volume (normally less than 100 do). Furthermore, over 100 of those had very strong stock volume patterns and traded at prices not seen it at least the last 100 trading days (i.e., they qualified as breakouts of a sort). Moreover, stocks with extraordinarily strong stock volume patterns — of which there are usually about 2 or 3 in a given day — numbered 42. We have been publishing Daily Volume Alerts for over 15 years, and I have been using similar volume statistics for trading going back over 25 years, and I have never seen a day like that.

Weighted Put Call Ratio Through 18 Sept 2009

Just remember to stay on top of all of your positions. Don’t fool yourself into thinking you’ve suddenly become a genius; don’t confuse brains with a bull market.

The $SPX chart is clearly bullish. The trend line connecting the March and July lows is now at about 980. So a correction could extend all the way back to that level (we don’t expect one will) and the $SPX chart would still be bullish. If there is pullback, it will likely meet support at one of the higher support levels: 1035, 1020, or 1000.

Equity-only put-call ratios remain on sell signals, as they continue to rise.

Market breadth has been extremely strong. This is, as always, a two-edged sword. On the one hand, it’s bullish because so many stocks are participating in the rally. On the other hand, it represents a massive oversold condition that could easily be conducive to sharp, but short-lived corrections.

VIX Through 18 Sept 2009

The volatility indices ($VIX and $VXO) are near their lows, and so the trend of volatility is down — and that is bullish for stocks.

In summary, the intermediate-term indicators are bullish. Overbought conditions indicate that a sharp, but short-lived correction could be possible at any time. Conversely, buyers seem to emerge at the slightest of pullbacks, indicating that there are still plenty of under-invested accounts out there.

SPX Through 9-11-09

Equity Only Weighted Put Call Ratio 9-11-09

VIX Downtrend Through 9-11-09

In summary, the fact that the $SPX chart is positive is the dominant feature of this market. Until that changes, there is no reason It would seem that the under-invested institutions will have to get sucked into the market before a meaningful correction can take place.

SPX through 8-28-09

Short-term, there is support at 1010 and at 980 below there. There is an uptrend line connecting the March and June lows, and that is the demarcation line for bull/bear arguments. As long as $SPX remains above there, the bulls are still in charge. That line is currently near $SPX 960.

Weighted Put Cal lRatio Through 8-28-09

Market breadth has been positive — extremely so. This is bullish for the intermediate-term because it signifies that the rally is broad. However, when stocks are this overbought, sharp but short-lived corrections are possible at any time.

VIX Down Trend Through 8-28-09

In the short term, as long as $SPX holds above 1010, the bulls are in charge. However, if $SPX slips below there — and certainly if it slips below 980 — and the equity-only put-call ratios have turned to sell signals by that time, then a bearish stance would be warranted.

$SPX failed to capitalize on its upside breakout above 950 last week. Ever since, the index has been on the defensive. To make matters worse for the bulls, nearly all of our technical indicators have generated sell signals. Recently, the $SPX breakdown below 930 confirms that last week’s upside breakout was a false one and raises the possibility that the lower end of the trading range, near 880, will now be tested.

SPX Price Chart 6-19-2009

The $SPX chart is neutral, with strong support at 880 and strong resistance at 950. There are some who claim that the chart has turned negative with this week’s decline, but that isn’t the way we are viewing it. Rather, the false upside breakout has merely returned $SPX’s classification to “trading range” from “bullish.” However, if 880 is violated on the downside, that will clearly be bearish. Meanwhile, adroit traders can attempt to trade within the range — buy near the lows and sell near the highs.

Put Call Ratio 6-19-2009

Weighted Put Call Ratio 6-19-2009

Market breadth has worsened. The heavily overbought conditions that existed in the breadth indicators after an unprecedented amount of time in overbought status (almost 2-1/2 months) have been alleviated. But these breadth indicators have now generated sell signals.

VIX 6-19-2009

In summary, the indicators are painting a more dire picture than is the chart of $SPX itself, and we always place a great deal of importance on prices because they are the final arbiter. In either case, bullish positions are no longer warranted.