Stocks Show Signs of Weakness: A Look Ahead for Traders
As diligent traders, it’s our job to stay ahead of the game. Lately, the market’s playbook is mirroring that ominous prelude to the 2022 bear market. The S&P 500 Index (SPX) is hitting a critical inflection point that we have to keep a sharp eye on. Let’s dive deep into what’s happening and how to maneuver through the current trading landscape.
Resistance and Support Levels in Focus
The SPX has reached resistance near the **5,860** mark—this level has now stubbornly held firm six times recently. It’s clear that this isn’t just a fleeting tributary; it’s a robust resistance area that traders need to acknowledge. On the flip side, there’s a support zone lurking between **5,670 and 5,770** established during late September and early October.
Here’s where the rubber meets the road: A close below **5,670** would significantly alter the bullish outlook, prompting us to rethink our core strategies. We must act decisively if the market tips into that danger zone.
At present, the SPX hasn’t ventured into the +4
Put-Call Ratios: A Double-Edged Sword
Now, let’s chat about the equity-only put-call ratios. Despite SPX’s stagnation, the absence of heightened put volume is telling. The ratios remain in the bullish camp, but caution is warranted as they inch into the overbought territory.
Specifically, the standard ratio has plummeted to its lowest levels since late 2021, just before that bear market we all want to avoid. The weighted ratio finds itself at new relative lows but not dipping below that critical 2024 benchmark. If these ratios kick into a roll-over trend, we could see buy signals emerge if they start trending higher.
Market Breadth Tells a Different Tale
Beneath the surface, *market breadth* is flashing warning signs. Both breadth oscillators are now on sell signals—a fact we confirmed with a two-day affirmation at the close on Oct. 22. While new highs on the NYSE still surpass new lows, the gap is narrowing.
For instance, just last Wednesday, we recorded **68 new highs against 40 new lows**. A two-day scenario where new lows start outpacing new highs could kill off that bullish signal established since mid-August—something we always need to stay ahead of!
VIX: A Mixed Bag of Signals
Moving on to the VIX, we see a mixed bag that demands attention. There’s a “spike peak” buy signal in play, which is secure unless the VIX closes above **23.14**. Conversely, a trend of VIX sell signals exists; this would change course with a close below the rising **200-day moving average (MA)**, presently hovering around **15.50**. As of the end of trading on Wednesday, the VIX was lounging at **19.24**—a midpoint that should keep us alert.
The landscape of volatility derivatives is predominantly supportive of stocks, with the CBOE volatility indices and VIX futures derivatives sloping upward. However, this bullish growth comes right after the expected volatility surrounding the upcoming U.S. elections on **Nov. 5**. Options for SPX set to expire immediately post-election are costing a pretty penny—similar to premiums on earnings reports—indicating anticipatory trading patterns.
Looking Ahead: Strategies for Traders
In summary, we’re maintaining a core bullish position as long as SPX holds above **5,670**. A two-day close below this level would terminate our bullish stance. But don’t sit on your laurels; be nimble, and ready to adjust if signals verify a change.
As savvy traders, it’s vital to continuously roll deeply in-the-money positions to take partial profits and mitigate risk. The market is rife with opportunities, but that’s only for those quick on the draw and ready to pivot.
Stay informed, stay involved, and keep a pulse on the shifting landscape. Let’s carve out profits amid uncertainty and keep our trading strategies sharp! Whether or not the current bullish position sustains itself in the face of lifting resistance levels, it’s essential to remain vigilant as we navigate this tricky terrain.
The market never sleeps, and neither should your strategies! Happy trading!