SPX Analysis 🧐

Market had a very strong rally over the 4-day period, extending from January 28 through February 2 . The oversold conditions that existed just prior to that were massive and part of the rally was a reaction to those conditions. In addition, there is a verified positive seasonality to the end of January, as mutual funds and other large institutions put cash to work. Both of those conditions aided the rally greatly, but they are no longer in effect. Oversold rallies, generally look great until they reach the declining 20-day Moving Average, and then they don’t have much left – perhaps extending slightly above that 20-day MA, but then falling back again. That’s exactly what has happened so far: $SPX rose slightly above the 20-day MA to nearly 4600, but then fell back like a hot 🥵 pot. This is classic bear market action. There is now a downtrend line that can be drawn on the $SPX chart (See the blue line in Figure 1). That is, for now, the demarcation line between bear market and a possible reversion back to a bull market. As long as that trend line is there, the bears are in charge.

Put-Call Ratio Analysis

Equity-only put-call ratios remain in extremely oversold territory (), but they have not yet rolled over to buy signals. Put buying remains relatively strong, especially on down days such as yesterday, February 3rd, when our “all-exchange” equity-only ratios as well as the CBOE equity-only ratio were 75 (i.e., 75 puts traded for every 100 calls – a high number for equity options). These ratios are at levels last seen in the post-pandemic-Crash days of April 2020. They will only turn to buy signals when they roll over and begin to trend downwards.

SPY 🕵️‍♂️
– huge put volume 440; 430 ; 425
– Add long put if spx break below ⬇️ 4440

VIX analysis

Implied volatility seems to have largely returned to its “normal” bullish state. $VIX fell sharply from the day it generated a “spike peak” buy signal on January 24th. That buy signal is still in effect. Moreover, $VIX has not returned to “spiking mode,” even after the large selloff on February 3rd. There is something of a bearish concern in that both $VIX and its 20-day Moving Average continue to remain above the 200-day MA. That is a bearish intermediate-term state that has been in effect since late last November. In a similar vein, even though $VIX has declined, it is still above 20, indicating that large traders (i.e., traders of $SPX options) are still somewhat leery of this market and are still buying protection.

The construct of volatility derivatives has improved in that the term structure of the $VIX futures is once again sloping upwards (at least in the front end of the curve), and the front-month Feb $VIX futures are trading below the price of March $VIX futures. Similarly, the CBOE Volatility Index term structure is sloping upwards, too. All of this adds up to a bullish state for this indicator, as far as its prediction towards $SPX and the broad market.

Market Internals

Potential Breadth Oscillator Buy Signal
Last week, we had a cumulative count of +5,000 to reach a buy signal. The cumulative count did not quite get there (it was +4,800 or so), but an oscillator buy signal was achieved anyway, using daily figures. However, that buy signal was stopped out already, after the extremely negative action of February 3rd. So, we will set up a new count beginning today, February 4th.

Suppose declines outnumber advances by 800 issues today, Feb 4th. That makes the cumulative total –800. Suppose that on Monday, there are 1,100 more advances than declines. That would make the cumulative total +300. Continue this process, and enter the trade if the cumulative total reaches +1,200 issues.
IF
the cumulative total of NYSE breadth, beginning today February 4
THEN
Buy 1 SPY Mar (2 ) at-the-money call and
Sell 1 SPY Mar (2) call with a striking price 14 points higher.

What happening this week:.

• The short term $SPX chart is bearish. But there are some buy signals due to oversold conditions. There is an old saying that no one makes money in a bear market: the bulls lose
because prices are falling in general, but the bears lose too because the reflex rallies are so strong.The major indexes were able to close higher last week as only Nasdaq was unable
to retake its 200-day daily moving average.
• Heading into this week, the major indexes are still technically in a downtrend setting lower lows and lower highs but have pushed off recent lows.
• A trendline lower that may be considered potential resistance on the SPY around the $454 level could play a key role if the ETF can surge through or pull back from that point if
tested. Implied volatility levels are well off their recent surge higher.
• More earnings report driven market action.
• Continue to watch the 2 year and 10 year treasury yield for a close in the gap between the two.
• VIX – the direction of the fear gauge may give a hint on where the market is going. Continued drop in VIX will mean markets either range-bound or going higher.
• US dollar watch to see if it finds support here. Drop could be good for gold, silver and emerging markets.
• Earning season continues.

Sectors in Play
• Energy very extended on oil but trend still is looking for higher. Nat gas pulling back now after big run.
• Financials will do OK in a rising interest rate environment.

Earnings:
• Monday – ON, TSN, HAS bmo and AMGN amc
• Tuesday – PFE, BP, HOG bmo and PTON, LYFT, CMG amc
• Wednesday – CVS, CGC, TEVA bmo and DIS, UBER and TWLO amc
• Thursday – Coke, Pepsi bmo ; TWTR amc

Trade ideas

GLD – We modeled out a bull put spread on the ETF, and more may make sense with a potential move over its 200-day moving average.

Watchlist :
• AAPL – Nice response to earnings – support at $167 and resistance around $177.
• AMD – $130 was resistance after earnings report as expected. Support now maybe $115.
• AMZN – most of the earnings came from RIVN – no reason to be overly bullish. Upside resistance now and $3200. Possible sell upside calls at $3300.
• GDX and SLV – still sticking around support.
• PYPL – found support around $121 after big selloff.
• USO and oil sector – still looking strong but extended run.
• SQ – double bottom with support around $100. Got long some on Friday.
• TSLA – range-bound $850 to $1000.