Weekly Market Commentary

Some of the stock market boredom has ended, as a number of traders took the Fed Minutes on Wednesday as a sign to do some selling (the Fed apparently discussed that — some day — the easing would have to end; personally, I don’t think it will end in the foreseeable futures (years), but that’s just my opinion).

$SPX has pulled back to the 1495 support level, which is also where the 20-day moving average currently is. This is a normal pullback in terms of the $SPX chart. But a close below 1495 would be negative.

The equity-only put-call ratios have started to rise over the last three days, but they are still not on sell signals — at least according to the computer programs that we use to interpret these charts.

Market breadth turned very negative in the last two days, and that was enough to generate sell signals from the breadth indicators.

On Tuesday, volatility indices ($VIX and $VXO) traded at their lowest levels since April of 2007. But now $VIX has exploded above 15, and that is a bearish sign for stocks. However, if $VIX falls back below 14, it would abort the sell signal.

We have been saying that we didn’t want to short this market before confirmed sell signals arrived, because it was too powerful. But now we have a confirmed sell signal from market breadth, and $VIX has closed above 15. If $SPX falls below 1495, that would be an even more important negative sign.

Larry McMillan