The S&P 500 continues to experience significant downward pressure, breaking through multiple support levels and reinforcing fears of a deeper correction. The index has now fallen below the crucial trading range that had been in place since last November, with tentative support near 5,525 and additional potential support at last September’s lows of 5,400.
Despite these oversold conditions, investors remain cautious as buy signals remain elusive. Historically, oversold rallies tend to fade when they approach the declining 20-day moving average, currently near 5,900. This suggests that, while a temporary 300-point rally may be possible, sustained momentum remains uncertain.
Technical Indicators Show Continued Bearish Trends
One clear indication of the market’s oversold state is the S&P 500 trading well below its -4σ modified Bollinger Band (mBB). While this could eventually trigger a McMillan Volatility Band (MVB) buy signal, further confirmation is needed before investors act on it. A classic buy signal would first require SPX to close above its -3σ band, but additional price confirmation is necessary to validate a true MVB buy signal.
Put-Call Ratios and Market Breadth Suggest Caution
Equity-only put-call ratios continue to flash sell signals, rising steadily and showing no signs of reversal. A buy signal would only emerge if these ratios trend lower, which has yet to happen.
Market breadth has also been significantly impacted, with “stocks only” breadth underperforming New York Stock Exchange breadth by a wide margin. Both breadth oscillators remain on strong sell signals, entrenched in oversold territory. A reversal would require at least two or three consecutive days of positive breadth.
Moreover, new lows on the NYSE continue to outnumber new highs, reinforcing the bearish outlook. On March 12, the number of new highs on the NYSE was just 11—the lowest since April 2024, during a previous market correction. A trend reversal would require two consecutive days of new highs outpacing new lows.
Volatility Indicators Point to Uncertainty
The Cboe Volatility Index (VIX) has been climbing, maintaining a sell signal for stocks. However, a new VIX “spike-peak” buy signal emerged on March 12 after VIX reached 29.57 on March 11 and closed more than 3.0 points lower the following day. While previous VIX spike-peak buy signals have struggled to gain traction, this latest development suggests a potential—but uncertain—short-term rally.
Additionally, the structure of volatility derivatives has been more bearish in recent weeks than at any time since the March 2020 pandemic selloff. The VIX futures term structure is downward sloping, a bearish sign for equities. Notably, the front-month VIX futures have been trading significantly higher than the following months, with March VIX futures recently running 1.30 to 3.0 points above April contracts.
Preparing for Potential Market Moves
With only one buy signal in place—the VIX spike-peak—investors remain on edge. The abundance of oversold conditions could fuel a sharp yet potentially short-lived rally to the 20-day moving average, approximately 300 points above current levels. Given the heightened volatility, traders should remain vigilant, rolling deeply in-the-money puts to lower strikes and awaiting confirmed buy signals before making significant moves.
As uncertainty persists, the market appears to be in a bear phase, where volatility remains high but is unlikely to mirror the extreme spikes seen in past market crashes. Investors should brace for continued turbulence while closely monitoring technical indicators for the next decisive move.
