Last week here I discussed why I believed we have not hit a cycle low, but that the likely scenario would be for price to vacillate both above and below 205, but then come right back to it. That worked out perfectly as every time SPY drifted away from 205, it was pulled right back.
Although the market did indeed put in a new low, the evidence presented below demonstrates a cycle low is likely still not in. And although the week ended on a slightly more bullish note, in the intermediate SPX is still in the range it has been for weeks (except now a bit wider with that new low at 2025.91).
Breadth: The market once again got to oversold levels that have led to bounces, but they have not gotten to oversold levels that are typical of a cycle low. My assumption is that the reason the market can’t get to extreme oversold readings is because there are too many puts bought on every tiny pullback, which then sets up a squeeze.
Stocks at 20-day highs: We have been getting below 5% which is oversold, but a washout low is usually closer to zero. Even if slightly below 5% were enough, it would be a better bottom if the low came in conjunction with a more oversold reading in other breadth indicators.
Stocks at 20-day lows: This is the one that has yet to get anywhere near oversold. Since every tiny pullback is met with a squeeze, 20-day lows never gets to washout levels. Getting to at least 40%, if not higher, would be much more constructive.
Stocks at 52-week highs: There is no hard rule that we can’t get a cycle low without 52 week highs being closer to zero, but just as with the mentions above, a washout low gives better odds to swing longs.
SPX total put/call: Finally a breadth indicator that has become more extreme than any time since the start of the year. The problem is that it’s doing so without the market itself getting oversold. That is likely why the market squeezes after every tiny stop is taken out by an algo.
SPY open interest: The only take away from this at the current moment is that if the market finally gets follow through to the downside, 200 will be good support. Any drop near 200 or below would be a good opportunity to begin looking for positive divergences and a rally. However, note that given there is technical support above 200, price may never get that low even if next week is a down week. If it does, then you know there is put support to strengthen the technical support already there.
Given that SPX is still in a range, but it likely hasn’t bottomed, any upside action to the start of next week will likely fail. The same is true for any bounce off of support that fails to meet typical oversold criteria. Thus, unloading longs or selling rips into resistance should be considered. On the other hand, a low that gets to extreme oversold readings – especially if it’s below 2000 (SPY below 200), would set-up for a much better long that has the potential to get back above 2084 with follow through.
SPX near-term technical support under 2052: 2043, 2039, 2026, 2011, 2001, 1996
SPX near term resistance over 2052: 2052: 2057, 2065, 2071, 2085 (over 2085 would be a bullish development, but would need follow through the next day)
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