Weekly Stock Market Commentary 6.14.13

The stock market has found itself under increasing pressure again
this week, and once again seems to have found support at 1600.
A week ago, $SPX was in a sharp downtrend on Thursday
when it traded close to 1600, and a massive two-day rally followed.
That rally took $SPX once again up to the 1650 level,where it
failed just as it had done before. From there it traded down this
week, with a couple of nasty days unfolding.
Then Wednesday night, in overnight trading, the S&P futures
once again traded down to 1600, and a rally ensued once more.
You won’t see this second retest of the 1600 level on a chart of
$SPX because it took place in overnight trading, but it was a valid test
nevertheless. It is fairly clear that 1650 is resistance and 1600 is support, $SPX is trading wildly and with great volatility in between those two levels.
This intra-range volatility is only reluctantly being reflected in the
actual (historic) volatility figures. For example, $SPX 20-day
historical vol has only increased from 9% to13% in the last
couple of weeks, but it should continue to increase.
Equity-only put-call ratios have remained solidly on sell signals
throughout. Even on days when the market has rallied, there has
been considerable put buying. Hence, the ratios continue to increase
and that is bearish for stocks. They are not oversold at this time.
Market breadth oscillators have been volatile, and they reached an
oversold status at Wednesday’s close. After that, Thursday’s big
rally pushed the “stocks only” to a buy signal, but the NYSE-based oscillator remains on a sell. There still have not been any “90% days.”
Volatility indices ($VIX and $VXO) have been swinging back and forth rapidly as well, but generally working their way higher.
A rising $VIX is bearish for stocks.
The construct of the $VIX futures remains our only bullish indicator.
The front month June $VIX futures (whose last trading day is
next Tuesday), closed at a discount a few times, but none of the
other $VIX futures did. Meanwhile, the term structure still slopes
upward. In a bearish environment, the term structure would
flatten and begin to slope downward.
In summary, $SPX is trading rapidly between 1600 and 1650.
We would act bullishly on the next $VIX buy signal or
bearishly on a close below 1600 by $SPX