Last week, we wrote that the bulls had to assert themselves. That they did. This has been a very strong week, and -- for now -- the danger to the bullish case has passed. $SPX twice tested the trend line, bottoming at 1384 and 1386 last Friday and Monday, respectively. That held, tentatively at first, and more strongly now that $SPX has risen above the 1420 level -- an area that had inhibited advances five separate times this month. Clearly, our observation last week that the trend line was the most important thing about the $SPX charge, was true. And that will continue to hold: as long as $SPX remains above the rising trend line (see Figure 1), the $SPX chart is bullish.



Equity-only put-call ratios have remained on buy signals since shortly after the March bottom. They will continue to be bullish as long as the ratios are declining. Both ratios are getting closer to the bottom of the chart now -- especially the weighted ratio. That means they're overbought, but that's not a sell signal. They won't turn bearish until they eventually curl over and begin to rise.



Market breadth hasn't been the most reliable indicator in the last few weeks. In fact, breadth gave another false sell signal last week. So, once again, we are viewing breadth as merely a confirming and not a leading indicator.



The volatility indices have continued to trend lower as the market has trended higher. Again, that is normal, and it will continue to be bullish as long as this downtrend in volatility continues. The 20-day moving average of $VIX is now down to about 19, so $VIX would have to rise above at least that level before any change in trend could be considered. More realistically, a close above 20 would be the requirement for a reversal of $VIX.



In summary, all systems are bullish, and that is evident by the trends in these indicators: the rising bullish trend on the $SPX chart, and the (declining) bullish trends on $VIX and the equity-only put-call ratios. Moreover, breadth is overbought, and thus conducive to the bullish case as well. We see no danger to the uptrend until at least two of these reverse direction -- something that doesn't seem too likely at the moment.

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.