The stock market has returned to an extremely bearish phase, as it has been making new yearly lows. This pattern of lower highs and lower lows, in stock prices, defines a bear market. Because of that, one should maintain a “core” bearish position.
Recent activity at the beginning of October had offered some potential hope for the bulls, as oversold conditions in the S&P 500 SPX, -0.94% became buy signals in a few cases. Those were quashed by this latest return to new lows, though, and so it’s back to the drawing board in terms of setting up new buy signals from lower levels.
Not only has SPX made new lows, but there is now a third island reversal on its chart (the circles on the accompanying SPX chart, above). These are rare for an index chart and are quite bearish.
The first major resistance area is 3700-3750 points, which is the first gap on the chart (created when the third island reversal was formed). As for support, one has to go back to the fall of 2020 to find prices that were this low, and when support is that old, it is tenuous, at best. There is theoretically support near 3500.
The McMillan Volatility Band (MVB) buy signal is still in place (green “B” on chart), and it would be stopped out if SPX were to close below the -4σ “modified Bollinger Band.”
Equity-only put-call ratios are pushing to new 2022 highs, reaching levels last seen in March and April of 2020. That makes them oversold, but still on sell signals. Buy signals would only be formed if they roll over and begin to trend downward. It had appeared that they were doing so at the beginning of October, but that was canceled out when they moved to new yearly highs. Also, the total put-call ratio is making new highs, so it has not generated a buy signal yet, either.