A week ago, it seemed possible that true intermediate-term buy signals were setting up. But the post-election decline was massive and persistent and essentially eliminated that possibility. That decline amounted to a loss of 187 $SPX points, or 1650 Dow points in just over six trading days. Now, the base-building must begin anew.

The $SPX chart was the one indicator that remained negative, even throughout the strong October Seasonal rally prior to Election Day. The trend lines all pointed downward, and the 20-day moving average continues to decline as well. A week ago, we had thought that perhaps a "higher low, higher high" bullish pattern was in the process of being built. As it turned out, that was not true, and the market fell to new lows.



The equity-only put-call ratios tried valiantly to hold onto the buy signals that were generated in early November. By Wednesday's close, those buy signals were in doubt, after the averages had curled higher. Frankly, at that point, we considered the buy signals canceled, but our computer analysis programs did not -- they still graded the put-call ratios as "buy." With Thursday's action, the weighted ratio has turned down again, regenerating its buy signal.



Market breadth has been terrible during the post-election decline. It is going to take at least a couple of days in which advances outnumber declines, for the breadth indicators to generate buy signals.



The volatility indices ($VIX and $VXO) have risen rather sharply, and that is bearish. In doing so, they re-established the bearish uptrend in $VIX. There are actually two uptrend lines -- a slow-moving one which delineates the larger bear market, and a more sharply rising one emanating from the post-election decline. If $VIX breaks down through those trendlines, that would be increasingly bullish.



In summary, our outlook remains bearish. We had been prepared to change that opinion if buy signals -- especially in $SPX -- had arisen. They did not, so a new base-building period must begin after today's new lows. Heavily oversold conditions can spawn short-lived rallies, but they will tire out in the area of the 20-day moving average.

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.