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Thursday, March 28, 2024

What The Charts Say: “Complacent” Bulls Remain As S&P Support Under Pressure

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The S&P 500 is down 8.02% YTD through the first five sessions of February. This is the second worst start to the year going back to 1928 and the weakest since 2008, when the S&P 500 dropped 8.95% YTD through the first five days of February. This, as BofAML’s Stephen Suttmeier details, compares to an average 1.16% gain for this period. The S&P 500 also has bearish signals for the Nov-Jan and January barometers. This is a risk for 2016.

We have made a case for a “sell into strength” tactical rally but the S&P 500 has not gotten much strength to sell. Many short-term indicators are becoming less supportive. The 5 and 10-day put/call ratios look complacent. Indicators that recently generated tactical oversold buy signals, such as the VXV/VIX ratio, Williams %R, the NYSE McClellan Oscillator, and slow stochastic, are rolling over. Both the 14-day Williams %R and McClellan Oscillator hit overbought before falling. Daily slow stochastic generated a sell signal below overbought on Friday.

The 5 and 10-day put/call ratios look complacent

Both the 5 and 10-day CBOE Total Put/Call ratios have dropped back toward the more complacent levels that coincided with the prior S&P 500 highs from early November and late December.

There is some room for the put/call ratios to move lower before hitting these complacent levels, but the put/call ratios are much closer to overbought or complacent levels than they are to oversold or fearful levels.

The rally for the S&P 500 from mid October through early November occurred with diminishing price momentum. Following this bearish divergence between the S&P 500 and daily slow stochastic (see red arrows below), buy signals on stochastic have preceded lower S&P 500 highs and sell signals have preceded lower S&P 500 lows.

Daily slow stochastic generated a fresh sell signal on Friday. The risk is for a lower S&P 500 low.

First support under pressure

We previously highlighted using the rising channel from January 20 as a guide for a “tactical” and “sellable” rally.

This channel came in at 1884 on Friday vs. an S&P 500 close at 1880. The channel rises approximately 6 points per session, which means that a failure for the S&P 500 to close above 1890.21 on Monday (2/8) increases the risk for a decisive break of the channel and perhaps 1872 chart support as well. This would expose the 1820-1812 lows. First resistance moves to 1917-1927. This is below the more important 1947-1950 resistance, where a break is required to put in a base for a stronger tactical bounce.

Weak VIGOR & most active A-D line say SPX risk below 1812

Tops for VIGOR, our longer-term volume model, and our US top 15 most active A-D line remain in place.

Both indicators continued to hit new lows last week to reflect a US equity market under distribution. New lows for these indicators increase the risk for new lows in the S&P 500 below 1812.

If SPX follows VIGOR & Most active A-D line, risk of top

Both VIGOR and the US top 15 Most Active A-D line show big tops.

In addition, tops for the Value Line Arithmetic, NYSE Comp, Russell 2000 and the S&P Midcap 400 are also potentially bearish for the S&P 500 (Chart Talk: 02 Feb 2016). In our view, this says that the S&P 500 shows risk below 1812 with the rising 200-week moving average at 1787 and the 38.2% retracement of the October 2011 to May 2015 rally at 1730.

We still are not ruling out a cyclical correction within the larger secular bull market with risk toward 1600-1575.

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