The entire mood of the market changed with the upward reversal on Wednesday. As I watched the market trade that day, it certainly seemed as if there was a forced seller (e.g., a margin liquidation) of a large account. Once that selling was out of the way, the market lifted. Now, it appears that the selling might well have been the error account at Societe Generale, liquidating the rogue trader's positions.

In any case, the market had reached oversold levels of nearly historic proportions and thus was primed to rally, which it has, and should continue to do, at least for a while. $SPX now has support at the Tuesday and Wednesday bottoms, at 1270-1275. On the other hand, there is resistance at 1365-1370, the area from which $SPX broke down last week. With a market as volatile as this one, support and resistance levels need to be drawn on the charts with crayons, for they are not exact.



The equity-only put-call ratios are not in agreement with each other (Figures 2 & 3). The standard ratio has given a buy signal, but the weighted has not. Even so, the weighted ratio is "oversold" as it is very high on its chart.



Market breadth has not been overwhelmingly strong on this rally, but it was very oversold and so that is buy signal in its own right.



Volatility indices spiked up on Tuesday, and then collapsed, leaving a classic spike peak buy signal as a result.



In my opinion, this rally is strictly the result of the massive oversold condition. Or, if you prefer, everyone who wanted to sell had sold. It has less to do with the news that CNBC and other media outlets try to conjure up to justify a suddenly-strong market. Does this rally mean "the" bottom is in? I don't think so, but it certainly means"A" bottom is in -- and should last for a while. The confluence of buy signals from the oversold conditions should be able to keep this rally going.

So, enjoy this rally while it lasts, but expect continued volatility.

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.