THE OPTION STRATEGIST FREE WEEKLY UPDATER Stock Market Commentary 13th May 2016

By Lawrence G. McMillan

The Standard & Poors 500 Index ($SPX) bounced strongly off of support at 2040 last Friday. That level remains strong support, with resistance at 2110.

Equity-only put-call ratios rolled over to sell signals last week, and while there was some flirtation with a new buy signal by the standard ratio (Figure 2), both of these put-call ratios are back on sell signals once again.

Market breadth has remained relatively weak, although the back- and-forth market action this week caused some consternation in these breadth indicators. The NYSE-based breadth oscillator canceled out its sell signal after Tuesday’s big up day, but it has since been reinstated. The “stocks only” oscillator has remained on a sell signal.

Volatility derivatives and indices have retained a bullish position through the current market decline of 70 $SPX points. Thus, traders are not “worried.”

In summary, $SPX has corrected from its April highs. As long as support holds at 2040 on $SPX, this will be merely a correction. However, a breakdown of that support level would open the door to much more bearish scenarios, including the possibility of eventually taking out the January lows.

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