The stock market did not have a good week. It hasn't completely broken down, though, so there is still a possibility that it could work its way higher. If this was football, you'd have to say the bulls have fumbled the ball, but they still have a chance to recover it. A week ago, $SPX was pushing upward above 1300 and the uptrend that had begun with the July bottom remained intact. But this week, after three days of selling that began pretty much as soon as the market opened on Monday morning, $SPX had fallen far enough to penetrate that uptrend line. That's the bad news. The good news is that $SPX did not make a "lower low," which -- as shown in Figure 1 -- is at about 1265. So, the $SPX chart remains neutral to bullish as long as it doesn't close below 1265.



The equity-only put-call ratios have weakened as well. Technically, they are still on buy signal -- at least according to our computer analysis program. However, as you see with the naked eye by looking at Figures 2 and 3, they have begun to curl upward. If they don't reverse back down fairly soon, they will mature into sell signals within a few days. But, for now, they remain bullish.



Market breadth (advances minus declines) was been miserable this week also. As a result, breadth gave a sell signal.



The most bullish indicators are the volatility indices ($VIX and $VXO). $VIX has remained in a downtrend, which is a generally bullish signal for the broad stock market. That downtrend remains in effect, as long as $VIX doesn't close above 22. It came close to doing so early in the week, when selling was heaviest, but eventually $VIX moved down sharply, even though the stock market was struggling. The fact that $VIX wasn't "worried" about a major market decline was apparently a correct call on its part, as the market has since stabilized.



In summary, the indicators have weakened, but not enough to consider turning bearish yet. $SPX would have to close below 1265 and $VIX would have to violate its downtrend (or equity-only put-call ratios would have to confirm sell signals) before we would turn bearish. So, at this time, we're rather grudgingly giving the upside the benefit of the doubt.

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.