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By Lawrence G. McMillan

The resistance just above 4300 on $SPX has held, for now. There are two major entities generating that resistance: 1) the downtrend line of this bear market, and 2) the declining 200- day Moving Average of $SPX. After failing at that resistance, $SPX quickly fell back below the 4170 area, from where it had broken out earlier in August. The bears, it seemed, had a chance at that point to engineer a larger downturn, but they were unable to do so. So for now, there is support at 4120+, with resistance at 4218 and 4300. A breakdown below 4070 would be more severely negative.

We are beginning to see some disagreement between indicators using similar methodologies. For example, the equity- only put-call ratio charts are giving opposite signals at the moment. The standard ratio is making new relative lows and is thus on a buy signal, but the weighted ratio has started to rise and is thus on a sell signal. This is rather unusual, and we would not expect the two to deviate for long, but for right now, they are not in agreement.

In a very similar fashion, we are seeing the same thing from our breadth indicators. At the moment, the “stocks only” breadth oscillator is on a buy signal, while the NYSE breadth oscillator is still on a sell signal.

A new $VIX “spike peak” buy signal occurred at the close of trading on August 25th. Also, at the current time, the trend (intermediate-term) buy signal is still in place.

In summary, we are retaining a “core” bearish position because of the downtrend line on the $SPX chart. Beyond that, we have mixed signals, as both buys and sells have appeared. Regardless, we will trade the confirmed signals as they occur, around the “core” bearish position.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.


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By klmcmg