This past week, the stock market has seen increased selling activity, highlighted by a significant downturn on the day the Consumer Price Index (CPI) report was released. Contrary to expectations, the CPI showed a minimal increase of 0.1%. However, the subtle uptick has had profound implications, suggesting that the anticipation of rate cuts may be premature or overly optimistic. This revelation triggered immediate selling, resulting in the S&P 500 Index ($SPX) retracing back to its previous trading range between 5050 and 5180, which historically acts as a support zone.
Resistance looms at the 5260 mark, hovering near the all-time highs established a few weeks ago. At present, the market is experiencing a mild pullback, which could potentially serve as a healthy correction, provided the $SPX can muster a rally to breach new all-time highs. Nevertheless, a drop below the 5050 mark spells trouble, activating a technical sell-off due to the breach of a significant support level.
In terms of market sentiment, equity-only put-call ratios have shifted. After flirting with sell signals for several weeks, we’ve observed a notable uptick, signaling confirmed sell indicators. These will likely persist until a downward trend emerges, signaling a reversal in sentiment.
Market breadth, another crucial indicator, has been lackluster. Despite intermittent days of positive market breadth, sell signals were activated on April 2nd following a wave of selling, and these signals have remained active. Market breadth is known for its potential rapid shifts, yet, for the time being, the sell signals persist.
The Volatility Index ($VIX) has also seen a gradual increase as the market has wobbled in recent weeks. However, it has yet to trigger any sell signals or enter a “spiking” phase, nor has it indicated a “trend of $VIX” sell signal, suggesting a wait-and-see approach for now.
Given the $SPX’s resilience in staying above the pivotal 5050 support level, we maintain our core bullish stance, albeit cautiously, with out-of-the-money calls. We’ll continue to navigate the market, responding to confirmed signals as they arise.
In summary, while the market has encountered a slight retreat, fueled by rate cut speculations and technical indicators, the overall bullish sentiment holds, tempered by caution and a keen eye on emerging trends.