S&P 500 Pushes Through the Trading Range - but Can Bulls Hold the Line?

The S&P 500 has managed to break through the upper boundary of its recent trading range, surpassing the 6,100 level. The key question now is whether this breakout will lead to further upward momentum or if the index will retreat back to the lower range, which lies between 5,870 and 5,770. Notably, there is still a gap on the S&P 500 chart that would be closed if the index were to decline to 5,860.

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Market indicators remain mixed. Equity-only put-call ratios are signaling a bullish trend. The weighted ratio has been on a buy signal for the past few weeks, showing a steady decline, while the standard ratio had been moving sideways. However, in recent days, the standard ratio has also started to fall, confirming its own buy signal.

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Conversely, market breadth has weakened, and breadth oscillators are now flashing sell signals. These signals have been verified over multiple days, reinforcing their bearish implications.

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Weakening market breadth, particularly near the upper end of a trading range, is a concerning sign and currently stands as the most negative indicator.

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Meanwhile, realized volatility has started to decline. The S&P 500’s 20-day historical volatility (HV20) has fallen to 12% and is no longer trending upward. This shift is moderately positive for stocks, as rising volatility had been a bearish factor since mid-January.

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The Cboe Volatility Index (VIX) has dropped to around 15 and has shown little movement from that level. The most recent “spike peak” buy signal, which was generated on January 27, remains intact.

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Notably, there were sharp declines in the S&P 500 following the tariff announcement on February 3 and the Consumer Price Index (CPI) release on February 12.

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Despite these events, the VIX barely reacted, and any slight increases quickly reversed. This behavior contrasts with past periods, such as last August and December, when the VIX experienced exaggerated spikes in response to market drops. Currently, there is no clear trend signal coming from the VIX.

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The broader structure of volatility derivatives remains supportive of a bullish outlook. Investors appear largely unfazed by concerns over tariffs or inflation data. This confidence is reflected in the upward-sloping term structure of VIX futures and other Cboe volatility indices, as well as the fact that VIX futures continue to trade at a premium to the spot VIX.

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In conclusion, there is no strong conviction to hold a core position at this time, as the S&P 500 remains confined within a trading range. The strategy moving forward will involve trading individual indicator signals as they arise while continuing to roll deeply in-the-money options.

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