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The S&P 500 index had stayed in a relatively tight range since breaking out over resistance at 3,185 in mid-July– till Monday. It looks like it’s lastly attempting for another upside breakout.
This recent trading variety has had the result of lowering recognized volatility (more about that later). Now that resistance at 3,280 (the July highs) has been conquered, the S&P (SPX) can set its sights on the resistance at 3,330 (the top of the massive Feb. 24 space down) and 3,395, the all-time high.
There is support at 3,185 and below that at 3,155. A close listed below 3,130 would be a break of assistance and would require a more bearish position.
The “customized Bollinger Band” (mBB) sell signal stays in place. It is rather an old signal, however, the stock market has stagnated to either +/ -4σ & sigma; Band, so it is still in result. With recognized volatility having diminished, the Bands are contracting towards the 20-day moving average, so maybe a resolution will be upcoming soon.
Equity-only put-call ratios continue to make brand-new relative lows. The basic ratio is breaking away at those January 2004 numbers and is hence the most overbought it’s remained in 16 1/2 years. On the other hand, the weighted ratio is now down to the lows of last January on its chart. As overbought as these are, they are not yet on sell signals. Sell signals will occur when the averages roll over and start to trend greater.
Market breadth has been back and forth. Currently, both breadth oscillators are on sell signals after several days of poor breadth. However, a longer-term perspective is somewhat more positive: the “stocks only” cumulative advance-decline made new all-time highs on July 21 and July 22, while the cumulative volume advance-decline has likewise been making new all-time highs– most just recently on July 29. When these precede the S&P 500 to brand-new all-time highs, the index generally follows.
New highs have stayed easily ahead of brand-new lows, although that is mainly due to the fact that there are almost no stocks making brand-new lows.
Volatility continues to present a fascinating image. As kept in mind previously, realized volatility is dropping as the marketplace sells a tight, sideways range. That has pushed the S&P’s 20-day historical volatility to 13%. That is much lower than VIX (VIX) It also raises the idea that if it were to be up to 8%, that would be an “official” overbought sign and would precede a sell signal by among our systems (if the S&P’s 20-day historic volatility falls to 8% or lower, then offer the marketplace when it later on increases above 10%).
That is not impending, naturally. However, if that decrease to 8% by historical volatility were to take place, it would bring up a not-so-pleasant comparison: the 1929-1930 rally lasted 6 months and saw 20-day historic volatility be up to 8%. Of course, then things reversed and got much even worse.
It might not play out that way this time, however, if historic volatility falls listed below 10%, we will not end up being complacent, that’s for sure.
Suggested volatility has fallen, too– simply not as fast. Nevertheless, VIX is listed below its 200-day moving average, and now its 20-day moving average has crossed listed below the 200-day as well (orange circle in the accompanying chart). This is an official intermediate-term buy signal for the stock market. The 2 most recent such signals remained in October 2019 and February 2019– both great times to purchase stocks. The most “well-known” such signal was in March 2009.
In the short-term, the VIX “spike peak” purchase signal of July 14 stays in place. It will continue to do so unless VIX starts to “surge” higher again (and if it did, that might even cancel out the above intermediate-term signal). However, for now, the VIX chart is bullish for stocks both in the short- and intermediate-terms.
The construct of volatility derivatives is decently bullish, as the VIX futures continue to trade with large premiums to VIX. This is particularly real of the October VIX futures, which rise since of the election and possibly seasonal stock exchange issues.
In any case, October futures are trading with a premium of almost 8 points to VIX since this writing. That is unheard of in the third month, specifically with VIX as high as it is. This implies that the hedged strategy of “sell VIX and offer SPX” establishes really well, but one would most likely have to hold it up until October expiration in order to see the premium dissipate, and holding that long involves excessive “event threat.”
In summary, the marketplace is when again trying for an advantage breakout. Was the “trading variety” respite enough to develop up purchasing power once again, or will the market once again exhibit its tired state? It seems that this time it may be pursuing a more definitive benefit move. We now have two longer-term buy signals (VIX crossing below the 200-day and the Cumulative A-D lines making new all-time highs).
In any case, the bulls remain in charge unless the S&P breaks down listed below assistance at 3,155.
