Once again the broad market rallied to the $SPX 1370 level earlier this week, and once again it failed there. All the while, our indicators have remained bearish, so that was not a surprise. What's a bit surprising is that the 1330 level has held as support, after being probed several times in the past couple of days. Technically, $SPX is thus in a trading range between 1330 and 1370. However, we remain bearish and expect to see that 1325-1330 level broken, as the $SPX chart is trending down now and so are its moving averages. If that level gives way, we would expect an acceleration of this decline, perhaps finally culminating in the type of massive oversold condition (spike peak in $VIX, high put-call ratios) that can lead to a tradeable bottom.



The equity-only put-call ratios continue to rise and thus remain bearish. They didn't even "blink" on last Friday's large rally. Moreover, they are not very high on their charts, indicating that put buying has not reached any sort of extreme. Hence, we expect these ratios to remain bearish for a while and thus expect the market to continue to decline.



Market breadth had expanded on the rally late last week, and actually gave buy signals. However, Now, breadth has weakened again, and those buy signals have been canceled. Breadth remains near oversold levels, but the market can easily decline while breadth is oversold.



The volatility indices ($VIX and $VXO) continue to rise in general, and thus remain bearish. The trend in $VIX is clearly up (Figure 4).



In summary, we have no buy signals, save for perhaps the occasional one in breadth. Therefore we continue to look for lower prices, and if $SPX slips below the support at 1325-1330, the selling  should accelerate.

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.