$SPX and other indices broke down late last week, resolving what had been a tight trading range with a downside breakout. It is typical of this market, though, to generate overbought and oversold extremes quickly. Thus, when the government introduced their nationalization plan for FNM and FRE, it combined with an oversold condition to produce a volatile 50-point rally in $SPX that basically took place over the weekend -- culminating with $SPX spiking up on Monday morning. From there, the bears took control again and pushed the market sharply lower into today, where a late-day oversold rally (suspiciously convenient in the last half hour) recouped 40 points of losses.



To say the least, the market is volatile. But the $SPX chart has taken on a negative tone in the last week. Despite the rallies, the 20-day moving average is trending down now. As long as that is the case, the $SPX chart will be bearish, in our opinion. That opinion would only change if $SPX exceeds this week's highs in the 1275-1280 neighborhood.



The equity-only put-call ratios are on sell signals. After some wavering about a week ago, they turned higher. As long as the ratios are climbing on their charts, they will remain bearish.



Market breadth reflects the schizophrenic nature of this market as well as anything. There have been both huge positive and negative breadth days -- sometimes contiguous to each other. But the bottom line is that breadth is positive.



The volatility indices ($VIX and $VXO) have steadily moved higher, not dropping much on the days that the market rallies. As a result, they are in bearish uptrends. Like the put-call ratios, these will be bearish as long as they continue to climb on their charts.

In summary, we remain bearish, despite the breadth buy signals. Sharp, but short-lived oversold rallies are rampant -- typical bear market action. But we will retain a negative view unless $SPX closes above resistance.

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.