S&P 500 Technical Indicators Signal Growing Market Instability Despite Recent Oversold Rally

Market analyst Lawrence G. McMillan warns of widening cracks in the S&P 500 as technical indicators point to continued downtrends and volatility.

By: AXL Media

Published: Apr 4, 2026, 8:01 AM EDT

Source: Information for this report was sourced from MarketWatch

Technical Breakdown of the S&P 500 Index

The S&P 500 (SPX) continues to struggle within a defined downtrend, characterized by its inability to maintain a position above crucial support markers. A recent drop below the –4σ modified Bollinger band suggests a highly oversold condition, which has triggered a technical buy signal from the McMillan volatility band. However, the index has yet to close above the 6,615 Chandelier stop, indicating that the immediate path of least resistance remains to the downside as the market faces heavy resistance from declining 20-day and 200-day moving averages.

Volatility Derivatives and Market Sentiment

Sentiment indicators currently provide a cautionary outlook for equity investors. Equity-only put-call ratios have ascended to new highs, a trend that traditionally signals a bearish environment until these ratios begin a sustained decline. Furthermore, the VIX, often referred to as the market’s fear gauge, continues to issue sell signals for stocks. According to Lawrence G. McMillan, the current structure of volatility derivatives suggests that recent market gains were likely a sharp, short-lived rally from oversold levels rather than a genuine shift in market direction.

Analyzing Market Breadth and Internal Weakness

A significant disconnect remains between short-term price action and internal market strength. While breadth oscillators have moved toward buy signals due to a brief period of strong advancing volume, other internal metrics paint a bleaker picture. On the New York Stock Exchange, the number of stocks reaching new annual lows continues to exceed those reaching new highs. This persistent imbalance serves as a bearish indicator, suggesting that the broader market participants are not yet supportive of a sustained recovery.