This rally has been virtually straight up since the early March lows, without even a retracement to the now-quickly-rising 20-day moving average. Clearly traders are feeling pressure to be "on board." $SPX has been able to rise while the indicators are mostly overbought, much as it fell sharply in February while they were oversold. It is usually long-term positive for a newly bullish phase to get overbought and to stay that way. Thus, from a broad perspective, this should be viewed as a intermediate-term bullish phase in the market. That doesn't necessarily mean that the all-time lows are in place, but they likely are for a while at least.



In the short term, the $SPX chart has support in the 810 area, and then again at 780. However, a close below 770 would bring the bullish premise into question, and a close below 740 would likely change the trend back to bearish again.



The equity-only put-call ratios are positive, and the standard ratio is extremely low on its chart -- and thus "overbought." However, we don't use absolute levels as signals. Rather, the fact that these ratios are declining is bullish and will continue to be until they roll over and begin to rise.



Market breadth has been slipping in and out of overbought territory. During a bearish market phase, each overbought breadth condition produced sharp sell signals. But that is no longer the case, indicating that the bullish phase is in place.



Despite the afore-mentioned bullish activity, volatility indices have not declined. $VIX remains within the 38 to 53 trading range. This means that traders are unwilling to sell the out-of-the-money $VIX puts with abandon as they often have in past bullish phases. Rather they are predicting that the market will remain extremely volatile, no matter what direction it is trending in. From a trader's viewpoint, this is actually good news. But for investors, it is not necessarily so.

In summary, the market is very overbought and thus a sharp correction would not be out of the question. However, the general trend is now upward. As long as $SPX generally stays above its rising 20-day moving average, it should be able to trend higher.

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.