The market sold off sharply early this week, but rallied strongly thereafter for three straight days. Even with all of this buying, $SPX is still within the 980 - 1010 trading range. A breakout in either direction would be significant.





The equity-only put-call ratios remain on buy signals. The weighted ratio made new lows, and the standard ratio -- while curling upward -- is still considered to be on a buy signal.



When the market sold off, breadth declined sharply, thereby temporarily relieving the massive overbought condition that had been in place during the rally from early June to early July. But the rally over the past three days saw strong market breadth again, and once again the breadth is overbought.



Volatility indices ($VIX and $VXO) moved higher when the market declined, once again breaking the downtrend that had been in place. This is the third time that the downtrend has been broken in recent months, but each time it re-establishes itself. That may be happening again. For now, though, there is a modest uptrend in place in $VIX. If it persists, that would be bearish. As long as $VIX is above 25, its chart has taken on a more bearish tone.



In summary, there are still short-term negatives in place: $SPX is bumping up against the 1010 resistance area, breadth is overbought again, and the term structure of the $VIX futures also reflects an overbought condition. Intermediate-term indicators are bullish, however, with the possible exception of $VIX. In a nutshell, the market is likely to make a volatile move away from the 1010 area.

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.