The stock market's rally ended one day after the October Seasonal Bullish period ended, and the ensuing selling has been swift and fierce. There is still a chance that this could turn out to be a bullish setup, but the onus is on the bulls to prove that it is -- and quickly.



The chart of $SPX is the only one of our main indicators that has not turned bullish. It remains in a clear downtrend. However, it could be in the process of changing that fact. The lows were made at approximately 840 on $OEX at the close of trading on Monday, October 27 -- the beginning of the October Seasonal Bullish period. From there, the rally peaked at 1005 on Tuesday. Now we are in the midst of the first decline off those 1005 highs. If this decline halts above 840 and then new highs are made above 1005, we will have a "higher low, higher high" pattern on the $SPX chart -- and thus an intermediate-term buy signal. Given how ugly the market looked the last two days, that might seem like a tall order, but we think it is possible.



The equity-only put-call ratios remain on buy signals, despite the heavy selling of the past two days. This is encouraging for the bullish case, of course. The standard ratio is racing lower at a swift pace, but these ratios will remain bullish as long as they continue to decline.



Market breadth finally gave buy signals earlier this week. The action of the last two days was extremely negative, pushing breadh back into oversold territory. Thus, breadth could generate buy signals if advances outnumber declines today or Monday.



Volatility indices ($VIX and $VXO) fell sharply early in the week -- to the extent that they apparently broke down through the strong uptrend lines on the charts. However, they have zoomed higher again in the last two days, so a new uptrend line is in force. Thus, an intermediate-term buy signal will not be in effect in $VIX until it clearly breaks the uptrend that is in force.

In summary, at one point we had buy signals from everything except the most important one -- the chart of $SPX. There has been some sharp deterioration in the last two days, but if the market can right itself today or Monday, there is a chance that the bullish case can still be made. The key is for this current decline to terminate (well) above 840 and then make new highs above 1005.

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.