Technical trading signals in the stock market are on the verge of turning bullish – MarketWatch
The stock market, as measured by the S&P 500 Index
SPX,
+0.62%,
got off to a rocky start this week. But that produced enough of an oversold condition that buyers stepped in and have taken the benchmark index all the way back to the top of its trading range, at 4700 points.
The lower end of the trading range is 4500 (see the accompanying chart, below), although there is also support at this week’s lows, 4530. SPX has tried many times to break out over 4705 and hold those gains but has been unable to do so. But market internals have improved somewhat, so maybe this time it will do so.
The extreme volatility that has been on display within the trading range has pushed the 20-day historical volatility (HV20) of SPX up to a historically large 21%. That is a sell signal in itself. Only if that volatility begins to retreat (falls below 15%, say), will this sell signal be terminated.
Equity-only put-call ratios have continued to rise — until yesterday (December 22nd), when they plateaued a bit. However, our computer analysis programs are still “saying” that these ratios are on a sell signal. Obviously, they are quite high on their charts, meaning they are oversold.
So a potential buy signal exists, but we need to see them begin to trend lower (and for the computer analysis programs to agree) before we can say that they are on buy signals.
Market breadth was abysmal when the market was going down. But it has recovered strongly with the rally since Monday, and now both breadth oscillators are on buy signals. We had a contingent bull spread recommendation in place and those contingencies have been fulfilled.
These oscillators had reached extreme oversold conditions in late November and early December — extremes not seen since the pandemic selling of March 2020. That sets the stage for a strong buy signal, and it is usually the second such one that is the “true” buy signal. This current signal is that second one, so this is promising for the bulls. For the record, the cumulative breadth indicators are nowhere near their old highs.
New 52-week lows have continued to outnumber new 52-week highs, even with the market rallying back this week. This situation could reverse in the coming week, but so far it has not. That means this indicator is still clinging to a sell signal. In a broad sense, it is not a constructive thing for SPX to be right at its highs, yet there are more stocks making new 52-week …….