Weekly Market Commentary

The stock market has had a bit rougher time this week.  Our indicators are turning bearish now, and if there is a breakdown in $SPX, a full-blown correction should be underway.

This brings up the matter of whether or not the recent $SPX breakout to new all-time highs (and the Dow’s as well) was a false breakout. I would not grade the recent breakout to new highs as truly false unless $SPX falls below support at 1540-1545.

spx-1

It is worth noting that small-cap indices such as $RUT have already broken down and did not make new highs.  Even more telling was the fact that, last Tuesday, when $SPX was up 8 and making new all-time highs, breadth was NEGATIVE!  These divergences should not be ignored.

 

Equity-only put-call ratios have rolled over to sell signals.

Market breadth indicators are on sell signals as well.

Volatility indices ($VIX and $VXO) have moved higher, but not overly so. A close above this weeks highs, and then above the March highs at 15.40 would accomplish that bearish task.

vix-2

 

This market has routinely ignored technical divergences and other negative items for quite some time, but a breakdown by $SPX would force the bulls to take notice.

Larry McMillan
http://www.optionstrategist.com