The S&P 500 Index ($SPX) broke out over resistance at 1530 this week, and that was a significant bullish development. In the past couple of days, $SPX has temporized, but we feel it will soon challenge, and likely exceed, its all-time highs at 1555. That 1530 level now represents support, and below that, the 1490 area is strong support. The upside breakout took many traders by surprise, especially those who had been looking for a more traditional pullback to test the support at 1490.



The equity-only put-call ratios remain strongly on intermediate-term buy signals. As long as they continue to decline, as they have been, those buy signals will remain in place. Only an upward turn in those ratios would turn the picture bullish, and that seems unlikely for the near future.



Market breadth has improved tremendously this week. In the early stages of a new upside move, it is important to have broad participation.



Volatility indices ($VIX and $VXO) have stabilized this week. $VIX is bullish, as it is clearly in a downtrend, noticeable by the declining 20-day moving average. The volatility indices, however, didn't collapse even though the market broke out on the
upside. That is not necessarily bearish (although a new uptrend in $VIX would be), but rather indicates that traders likely expect a relatively high level of volatility to persist, even in a rising market. That's the sort of environment that we saw in the late 1990's, and it may be present again.



In summary, the picture is intermediate-term bullish and will continue to be as long as the indicators retain their current positive states.

Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, recognized as essential resources for any serious option trader's library.