The stock market is range-bound over the short term. Don’t expect that to last long. – MarketWatch
The U.S. stock market, as measured by the S&P 500 Index
SPX,
+1.75%,
has struggled this week overall, during what is typically a seasonally bullish period. That is what Yale Hirsch termed “the Santa Claus rally” 60 years ago. It covers the time period of the last five trading days of one year and the first two trading days of the next year.
Typically, SPX rallies a little over 1% during that time period. With the exception of Thursday’s strong session, Santa is missing in action, but there is still time. One of the side effects of this system is that, if the market fails to register a gain over that seven-day period, this is a negative indicator going forward. Or as Hirsch so eloquently put it: “If Santa Claus should fail to call, bears may come to Broad and Wall.”
The SPX chart itself has resistance at 3900-3940, after the breakdown below 3900 in mid-December. So far, there has been support in the 3760-3800 area. Thus, the market is range-bound over the short term. Don’t expect that to last too long. From a slightly longer-term perspective, there is heavy resistance up to 4100, which is where the stock market rally failed in early December. On the downside, there should be some support at 3700, and then at the yearly lows at 3500. And, of course, the largest picture is still that of a bear market, with the trend lines sloping downward (blue lines in the accompanying graph of SPX).
We do not have a McMillan Volatility Band (MVB) signal in place at this time. SPX needs to move outside of the +/-4σ “modified Bollinger Bands” in order to produce such a signal.
There has been heavy put-buying recently, and the put-call ratios have moved steadily higher because of it. These ratios have been on sell signals for a couple of weeks now, and as long as they are trending higher, those sell signals will remain in place. This is true of all of the put-call ratios we follow, especially the two equity-only ratios (accompanying charts) and the total put-call ratio. The CBOE equity-only put-call ratio registered a huge number on December 28, but there are some arbitrage implications there, so that number may be over-stated. The standard ratio is nearing its yearly highs, which means it is definitely in oversold territory, and the weighted ratio is beginning to approach oversold levels as well. However, “oversold does not mean buy.”
Market breadth has been poor, and thus our breadth oscillators remain on sell signals, albeit in oversold territory. The NYSE …….