Selling has continued on most days since the May top. However, many of the technical indicators don't seem to be at extremely oversold levels, which indicates that there is more to come on the downside.

$SPX has resistance at 1370, and also at 1330-1335. There is support at 1270, which is both the January and March bottoms. That certainly seems destined to be tested, as $SPX closed at 1283 today. We don't really expect the 1270 level to provide more than token support, unless the technical indicators manage to turn positive coincident with $SPX testing that level.



The equity-only put-call ratios remain on sell signals. They continue to rise as the market falls, which means they remain bearish. They will continue to be bearish until they roll over and begin to trend downward. That "roll over" can occur at any level on the chart, although after a decline this steep, we'd expect to see the put-call ratios probe their highest levels. However, they are not near the highs of their charts, so it appears there is more selling to come.



Market breadth has been abysmal, and has fallen into deeply oversold territory. Even though these very negative breadth readings might be able to spur a counter- trend rally, we would not cover shorts until buy signals are seen from the other indicators.



Volatility indices ($VIX and $VXO) have been laggards. The bottom line is that we expect to see $VIX spike up above 30 and peak before a true capitulation buy signal is registered for this move. Meanwhile, $VIX remains in an uptrend, despite a probe downward during the FOMC-generated rally on Wednesday. As long as $VIX is trending higher, that is bearish for the broad market.



In summary, the bulls are worried but still bottom fishing. They need to capitulate before this market can bottom. At this point, there is nothing bullish except a deeply oversold condition. No true buy signals exist. Usually, the first one to fall in line is a spike peak in $VIX, but we don't appear to be close to that happening at all. So, traders can take partial profits on long puts and can roll down to protect profits, but short positions should continue to be maintained until actual buy signals occur.

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.