Stocks have not yet recovered from their failed upside breakout in February, which is causing a psychological burden on the market. The $SPX is currently below the apex of the blue triangle in Figure 1, suggesting that the breakout was false, as it happened so close to the triangle’s end. The resistance area that was left behind when the market retreated after the failed breakout is strong in the 4080-4200 area. The market has recently tried to rally, but it was an oversold rally and ran into resistance at the declining 20-day Moving Average, causing a sharp retreat. If the $SPX manages to rise above 4200, it will still face further resistance at 4300. On the downside, the $SPX has fallen to the support area of 3900, with the larger support area being from 3760 to 3850, left from the latter half of December. There are concerns that $SPX may break below its December lows, which is a very negative sign. Equity-only put-call ratios are on sell signals, as they continue to rise quickly. The Total put-call ratio has also risen rapidly, with readings greater than 1.00 in the last two days, indicating a very short-term, one-day buy signal. Market breadth has deteriorated badly, with both breadth oscillators on sell signals and in oversold territory, though oversold does not mean buy. The New Highs on the NYSE have recently declined, and while this does not constitute a sell signal, it could lead to one if New Lows number more than 100 for two consecutive days, and the number of New Lows exceed the number of New Highs on both of those days. $VIX jumped over three points higher on March 9th, which is an oversold condition that could lead to another “spike peak” buy signal, but stocks could still fall sharply while $VIX is in spiking mode. If $VIX closes above its previous high point of 23.63, that would cancel out the previous “spike peak” buy signal trade, and a new one would need to be set up. If $VIX closes above its 200-day Moving Average of 24.20, that would cancel out the trend of $VIX buy signal. The term structure of the $VIX futures has flattened but still slopes upward. The construct of volatility derivatives is weakening a bit, but it is generally bullish for stocks. The 9-day Vol Index ($VIX9D) has jumped higher in the past few days due to the upcoming unemployment report and the CPI report, which is volatile, resulting in a short-term (5-day) buy signal when it finally comes back down and closes below any of the other four CBOE Vol Indices. If $VIX closes above $VIX3M, it would be another oversold setup for an eventual short-term buy signal.

Tuesday’s decline was sparked by comments from Fed Chairman Powell, when testifying before Congress.
As we noted in our daily letters this week, that is quite reminiscent of the market’s reaction to then-Fed Chairman
Arthur Burns during the 1973-74 bear market. Back then it was the “3 I’s” that were bothering the market (Interest
rates, Inflation, and Impeachment). Today we have the “2 I’s” (Interest rates and Inflation), and the market is still
predominantly concerned with those. The bulls can drag out all the long-term indicators they have, but the market
is still worried about the “2 I’s.”
We are still carrying a “core” bearish position, because of the negative $SPX chart and because of the strong
sell signals from the equity-only put-call ratios. We have tried to trade other confirmed signals around that, and
current oversold conditions indicate that perhaps other short-term buy signals might be popping up soon.
Regardless, this is still a bear market until proven otherwise by $SPX price action
On Tuesday, Fed Chairman Powell’s remarks during his Congressional testimony triggered a decline in the market. This event reminded us of the market’s response to then-Fed Chairman Arthur Burns during the 1973-74 bear market, where the “3 I’s” (Interest rates, Inflation, and Impeachment) were the primary concerns. Today, the market is still predominantly worried about the “2 I’s” (Interest rates and Inflation), despite long-term indicators presented by the bulls. Our “core” bearish position remains unchanged due to the negative $SPX chart and strong sell signals from equity-only put-call ratios. However, oversold conditions suggest the possibility of other short-term buy signals emerging. Nonetheless, the market will continue to be a bear market until proven otherwise by $SPX price action.