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Climactic Breadth Readings: Buying Exhaustion or Initiation? - Whipsaw BUY Signal for SPX

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The SPX whipsawed into a Price Momentum Oscillator (PMO) BUY signal, suggesting a short-term rally is up next. Climactic breadth indicators popped on Friday and the VIX penetrated the upper Bollinger Band. When I see these types of readings, I classify them as a buying exhaustion or buying initiation. 



Below you can see in the thumbnail that the PMO triggered a SELL signal on Thursday, but Friday it went back on a BUY. I've been discussing in prior blogs and on the MarketWatchers LIVE show that if the market is to avoid a bear market, it needs to bounce off the rising bottoms trendline/200-EMA or worst case, bounce off horizontal support at the February low. Right now it appears the market is ready to rally off support. One not so encouraging feature of this chart is the SPX's inability to break above the declining tops trendline. I'll feel more bullish or at least less neutral if that breakout occurs.

I've got mixed feelings about our climactic indicators. I've highlighted the elevated breadth readings, but they come alongside a penetration by the VIX of the upper Bollinger Band on my inverted scale. Typically a puncture of the upper Bollinger Band is followed by a very short-term decline. However, these highly positive breadth readings are arriving right after a steady decline. This suggests a buying initiation. There hasn't been a long enough declining trend for price to hit an exhaustion.

Conclusion: So where does that lead us? If you combine the positive breadth readings with the new PMO BUY signal on the SPX, it suggests Friday's rally will continue this week. My only issue is that the VIX is reaching very low readings again which implies complacency and bullishness. Sentiment being contrarian for the market, bullishness equals bearish for the market. In this case however, I suspect the lack of fear isn't necessarily accompanied by bullish exuberance, so I am going into this week based on these indicators as a neutral (market will close mostly unchanged if a big rally is joined by a big decline next week) to bullish (rallies will be larger than declines on the week).


Technical Analysis is a windsock, not a crystal ball.

Happy Charting!
- Erin


Helpful DecisionPoint Links:

Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking


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Erin Swenlin
About the author: helped create and manage the DecisionPoint.com website alongside her father, Carl Swenlin. Together, Erin and Carl launched the DecisionPoint daily blog in 2009. She hosts the MarketWatchers LIVE web show at StockCharts.com, and is also a Member of the CMT Association. Learn More
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