Various indicators have been turning bearish since mid-November. But until
this week, $SPX itself had not broken down, and since price is “king,” that
was quite important. However, now $SPX has broken down, as it has fallen below
support at 2050. This completes a bearish pattern, and a full-fledged correction
is underway. This could be sharp and short-lived, and since it is taking place
late in the calendar year (when seasonal bullishness occurs), that is probably
the case. However, it should be respected until buy signals actually occur.
Equity-only put-call ratios rolled over to sell signals about 10
days ago, and those signals remain strongly in place.
Market breadth has been weakening for several weeks, as the
breadth oscillators gave several sell signals which were subsequently
aborted. But this time, the sell signals took hold, and they remain in force.
CBOE volatility indices have exploded to the upside. $VIX closed above last
week’s highs, and that established an uptrend in $VIX, which is a sell signal for stocks.
In summary, the indicators are negative, and with $SPX falling below support, it has released selling like the breaking of a dam. It is likely that the correction will be short-lived, but we are not going to trade the long side until buy signals are confirmed.