When $SPX broke down below the 850 support area last week, that seemed to seal the fate of the bulls. That turned the $SPX chart negative, and it remains in that state today. It is actually in a very tight downtrend, even after yesterday's large reflex rally. The 20-day moving average has turned lower, and there is resistance at several levels. First, the 840 area -- which stopped rallies both yesterday and today; second, the afore-mentioned 850-860 former support area is now resistance. Finally, the 20-day declining moving average is currently at about 880 and declining.



The equity-only put-call ratios are on sell signals, and have not wavered. Their most recent sell signals occurred pretty much in line with the previous levels at which sell signals have been generated in this bear market.



Market breadth has started to reach daily extremes again quite often. The number of "90% days" in the box below is telling in that regard. There were three "90% down days" or "90% down volume days" packed within six trading days -- from January 12 through January 20. The market had not lifted much at all while those heavy days of selling were occurring. As a result, there was a large oversold condition in effect, which resulted in a huge rally Wednesday, January 21.



Volatility indices ($VIX and $VXO) have been trending higher since the first of the year, and thus have been -- and still are -- on sell signals. $VIX has become quite volatile lately, often swinging back and forth by 5 to 10 points per day. Even so, we consider the trend of $VIX to be up, and thus bearish. Only a close back in the low 40's, below its moving average, would change that picture.



We don't expect the "retest" of the November lows to hold, but rather we expect to see new lows on $SPX. Whether that occurs on this move or not is unclear, but so far, the sell signals remain in effect. Having said that, it should be noted that counter-trend rallies can occur whenever oversold conditions exist, but are generally limited in nature.

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.