When the S&P 500 Index ($SPX) closed above 1340 last Monday -- its second strong rally day in a row -- it turned a number of intermediate-term indicators positive. That's the good news. The bad news is that the market has not been able to follow through on that positive tone, and thus has already put a number of these indicators in jeopardy.



The upside breakout above 1340 turned the $SPX chart short-term bullish. After a brief move higher, the index fell back, testing the 1330-1340 support area. That test failed yesterday, as $SPX closed at 1325. That's not good, but it's not a complete deal breaker either. A pattern of higher highs and higher lows can still be established if the next rally carries $SPX above 1350. However, if $SPX closes back below its 20-day moving average -- currently at 1320 -- then we'd downgrade the $SPX chart to bearish once again.



Equity-only put-call ratios turned bullish this week as well. Not only that, but the buy signals emanated from a very high level on the chart, which normally provides the buy signal with even more validity. Our computer analyses "called" these buy signals quickly, as you can see from Figures 2 and 3 that the averages have only just begun to curl over and head downward. They will remain on buy signals unless new highs are made in the ratios.



Market breadth turned positive with Monday's breakout as well, generating buy signals. In some ways, breadth is giving its best showing in quite a while, as it's actually stronger than price movement this week.



The volatility indices ($VIX and $VXO) gave buy signals last week, when they spiked up during the retest of the $SPX lows, and then declined sharply that day and the next. Those spike peak buy signals are intermediate-term buy signals and they remain in effect.

In summary, this market is very skittish, and short-term indicators such as $VIX premium levels -- or the daily $VIX put-call readings, as explained in the feature article -- seem to be more important to market movement than intermediate-term indicators are.

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.