Opinion: 683 days since S&P 500 touches widely used measure The stock market, as measured by the Standard & Poor’s 500 Index broke down through support, and the reflex rally that followed was feeble. The decline in the S&P 500 index SPX, -1.51% accelerated after breaking through minor support at 1,965 last week. But in reality, the index has been declining since making a new all-time intraday high on Sept. 19 — the day of the AlibabaBABA, -0.72% initial public offering. That is not a coincidence. The decline comes amid sell signals from all of our indicators, but some are now becoming oversold. Consider the SPX chart itself. The downtrend is evident. Even while the bulls talked about holding support or got excited about the two big up days slightly over a week ago, you can see that the pattern on the chart was one of lower high after lower high. Moreover, the minor support at 1,965 (short red line on chart) somehow became the “line in the sand,” and when it was crossed, sellers appeared with a vengeance. The S&P 500 probed below the –4 standard deviation (sigma) “modified Bollinger Band” (mBB) last Thursday. A buy signal would set up for the mBB system if SPX closes below the –4 sigma Band (if that first condition is met, then a buy signal would be completed when SPX eventually closed above the –3 sigma Band). The last three mBB signals are marked on the chart: A buy signal in February (successful immediately), a sell signal in June (which wasn't successful), and sell signal in early September (which was eventually successful, but not immediately so). In early August, there was another SPX decline that touched the –4 sigma Band (vertical black arrow on chart), but it never closed below –4, so there wasn't an official mBB buy signal at that time. Hopefully, we will get a clear buy signal this time around. One more thing regarding the SPX chart: I have drawn the 200-day moving average on it. You can see that it is currently just above 1,900 and rising. We are currently in the longest time above the 200-day in history. It has been 683 trading days since SPX last touched the 200-day moving average (on Nov. 20, 2012). This is a record just waiting to be broken. Perhaps this will be the time. The August decline in SPX bottomed out at 1,910. So, with the 200-day rising steadily, perhaps the 1,910 area is something of a downside target for this current decline — unless it morphs into something more serious. Equity-only put-call ratios remain on sell signals. They’re racing higher on their charts, and that’s bearish. The standard ratio is now at the highest level in nearly two years, so one would have to consider it oversold, but that is rather meaningless. It won’t give a buy signal until it rolls over and begins to decline. The most recent sell signals — which coincided very closely to the market’s highs — were first “called” by the computer program that analyzes these charts, rather than by one’s naked eye. So we will continue to monitor the computer’s analysis. At this time, the computer isn't giving much chance at all of a buy signal from these ratios in the near future. When the Total put-call ratio’s 21-day moving average rises above 0.90, that’s rare, but it’s a precursor to an eventual strong buy signal. Those types of buy signals have a target of a 100-point rise in the S&P 500. The signal hasn’t set up yet, but the 21-day moving average has now reached 0.89 and it is rising, as other put-call ratios are. So it seems that it will cross above 0.90 and thus set up a very powerful buy signal in the somewhat near future. These buy signals can take some time to set up, so don’t buy the market just because the total ratio is about to rise above 0.90. The complete buy signal may not occur for a while. Market breadth has also been very negative — even farther back than the most recent market top. The breadth oscillators that we follow are both on sell signals, but they’ve reached severely oversold territory. From a broader perspective, the negative divergence in cumulative breadth continues to remain in place. That divergence occurred when cumulative breadth made its last new all-time high on July 3, while SPX went on to new closing highs nine more times through mid-September. That type of divergence often marks the beginning of severe market declines, and at this point, we’d have to say that a severe decline remains a possibility. Volatility indexes VIX, +11.25% VXV, +6.83% are in uptrends, and that is bearish for stocks. Note the rising green line on the chart. Oddly enough, VIX hasn't officially reached a “spiking” mode. A spiking mode is created when VIX rises 3 points or more over any 1-, 2-, or 3-day period, using closing VIX prices. That hasn't occurred. Hence a VIX spike peak buy signal isn't setting up, despite the fact that VIX has risen from below 12 to nearly 18. It may still occur, but it hasn’t so far. Previous VIX “spike peak” buy signals are marked on the chart. As long as VIX continues to trend higher, that will be bearish for stocks. A VIX close below 14 would potentially be a bullish sign. The construct of the VIX futures remains bullish. All of the futures contracts except the front-month October have remained at premiums to VIX throughout this most recent stock market decline. Furthermore, the term structure continues to slope upward. This can be observed through the futures prices themselves, or through the comparison of the four Chicago Board Options Exchange volatility indexes (Volatility Index VIX, +11.25% S&P 500 3-Month Volatility IndexVXV, +6.83% Mid-Term Volatility Index (VXMT) and Short-Term Volatility Index (VXST)). VXST did rise above VIX and stayed there for several days — a sign that volatility is going to remain high — but the others maintained their relative positions. For example, VIX didn't close above VXV (which would be quite bearish). This construct is a longer-term indicator and the fact that it remains bearish tells us (so far) that this stock market decline is just a correction and not the beginning of a bear market. In summary, we don’t have any true buy signals from our indicators, but there are oversold indications so a short-term rally could take place. A short-term rally in these situations usually carries back to the declining 20-day moving average or a little farther. That average is now at 1,985 and declining. I would be surprised to see a rally carry back that far, but it certainly could — especially now that volatility has increased. So, we remain intermediate-term bearish (until some true buy signals appear), but are wary of a short-term bounce now. http://www.marketwatch.com/story/record-200-day-moving-avera...