The market has managed to struggle its way to the traditionally bullish holiday season without a major collapse. However, it certainly hasn't had much strong bullish action. $SPX broke down below the 1465-1470 support level early this week and has not been able to climb back about there since. So that now represents resistance. There is minor support at this week's lows (1435), but the real support is at the 1410 level -- near the closing lows of both the August and November declines. As we have stated before, from a broader perspective, $SPXseems to be in a wide and volatile trading range between roughly 1410 and 1560.



Equity-only put-call ratios are clinging to recent buy signals.There were buy signals issued about two weeks ago, but now the ratios have started moving higher again. The standard ratio (Figure 2) is right on the verge of moving to new highs, which would negate that buy signal. The weighted ratio feinted higher, but then yesterday confirmed the buy signal by moving to a new December low (Figure3). So, these important ratios are still on buy signals, but not decisively so.



Market breadth reached very oversold levels early this week, one of the factors in Tuesday afternoon's strong reflex rally. If in the next couple of days advancing issues lead declining issues by a decent margin, breadth buy signals will be generated.



Volatility indices ($VIX and $VXO) have drifted lower this week, as option sellers have gotten aggressive. In one sense, $VIX is still in a downtrend that began in November, and that is bullish. However, the uptrend in $VIX that began in June (or October) is still intact as well, and that is bearish. So, depending on one's time horizon, he could interpret the trend of $VIX accordingly. For now, we'd have to rate $VIX as neutral (although not the $VIX futures --more about that letter).



From these indicators, we are assuming a cautious attitude about the market unless $SPX can close above 1470. If that happens, the $SPX chart will have a more positive slant to it, and it is likely that the breadth oscillators will have generated buy signals, joining the equity-
only put-call ratios. However, lacking that close above 1470, we are still cautious.

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.