Neither the bulls nor the bears have been able to take charge recently. The upside breakout over $SPX 1100 last week had no followthrough, and in fact $SPX dipped back below that. At the time, one might have thought the bears would capitalize on that failed breakout, but they did not. The market sold off, and then held at a previous support level at 1080-1085, and then challenged the highs again.





Equity-only put-call ratios have not been useful indicators ever since massive hedging activity artificially distorted them, beginning last August. But after three months of unprofitable hedges expiring worthless, it may well be the case that this hedging activity is abating. If so, the recent modest downturn in these ratios could be budding buy signals.



Market breadth has been a good indicator during the rally since the March bottom. But the last buy signal from breadth was at the late October lows. Since then, there have been a couple of sell signals, and those sell signals are still in effect. This is a negative divergence, with $SPX sitting right at its highs, and it is something that is worrisome.



Volatility indices ($VIX and $VXO) have made new lows, trading at the lowest levels since before the Lehman Brothers bankruptcy last year. Declining volatility is a bullish indicator for the stock market.



In summary, the intermediate-term remains bullish at this time. However, there are some potential sell signals building on the horizon. They should be heeded, especially if $SPX violates support at 1080.

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.