Weakness in Breadth, volume, sentiment, and momentum all lead BofAML to warn "sell rallies" in stocks. Starting 2016 under pressure, the S&P 500 has big support at 1994-1990 but 1965 is the level at which things become perilous. Simply put, holding 1965 is required if a 'bounce' like late 2011 is expected.
S&P 500: 1990-1965 is the big support to start 2016
The S&P 500 starts off 2016 under pressure, with big support at 1994-1990 to 1965. As we outlined in our 2016 Year Ahead, 1965 is the 61.8% retracement of the late September-to-early November rally and holding this level is required to maintain that the S&P 500 is consolidating within a rising trend similar to 2011. The S&P 500 dropped but held a similar 61.8% retracement level in late 2011, before an upside breakout in early 2012. Today’s downside gap, at 2038-2044, offers initial resistance. First resistance remains 2076-2080, which held on a muted seasonal rally in late December, and is ahead of big resistance at the 2100-2135 range highs.
Holding 1965 is needed to keep pattern similar to late 2011
In late 2011, holding a key 61.8% retracement level kept a bullish consolidation pattern intact and preceded an upside breakout in early 2012. This means that holding the 61.8% retracement at 1965 is needed to keep the late 2015-to-early 2016 pattern similar to the bullish setup from late 2011/early 2012. A failure to do so would weaken the overall pattern for the S&P 500.
And Breadth & Volume remain lackluster to weak
Breadth: The S&P 500 advance-decline line has struggled since probing to new highs in November and December.
Volume: On-balance-volume (OBV) on the S&P 500 remains near year-long lows and points to distribution or selling, which is a negative sign.