Once again, $SPX found support in the 805-810 area this week. That is certainly an important area now, and if the index should fall below there a torrent of selling would surely be unleashed. Recent rallies have failed at the declining 20-day moving average, now near 850. This is also about the same area as the declining trend line of the bear market (see Figure 1). If those downtrending lines can be overcome in a significant way, then a more substantial rally could ensue. So, at this point, we will wait and see. Friday morning's unemployment report may cause the market to gap.



Equity-only put-call ratios remain on sell signals, however. There had been some chance about a week ago that buy signals could arise, but they did not.



Market breadth has remained rather neutral of late, getting neither very overbought nor oversold. Consequently, breadth is not giving us a fresh signal at the current time.



Volatility indices are in a neutral range as well (see Figure 4). Usually, the $VIX chart and the $SPX chart would be "upside down" versions of each other, but that's not the case at the current time. Both are showing a flat support line underneath and a declining trend line above. If $VIX were to close below 38, that would be bullish for the market. And, if $VIX were to break out above 50, then that would have bearish implications.



In summary, a breakout by $SPX should be coming soon perhaps as early as today. The formation that it's in is called a "wedge" by technicians and generally has bearish implications. But we prefer to wait to see what actually happens. Once the breakout occurs, it is likely to produce a sustained move in that direction for at least 50 $SPX points and perhaps more.

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.