The S&P 500 Index ($SPX) has still not been able to break out of its 1080-1110 trading range on a closing basis. This is a very tight range that has lasted for nearly a month (since November 9, actually). Our indicators are modestly bullish, so the odds slightly favor an upside breakout.

The $SPX chart remains mostly bullish. The rising trend line connecting the March and October lows is at about 1070 and rising. Coupled with the afore-mentioned support at 1080, this means that the trend is still bullish. However, a close below 1070 would be problematic for the bulls.



Equity-only put-call ratios have begun to clearly decline and thus generate buy signals. In normal times, we would be encouraged by that fact, but with the distortions caused by the heavy hedging activity since July/August, we still view the signals from these put-call ratios tentatively. These are not our primary indicators at this time.



Market breadth, on the other hand, has been a much more accurate signal during the rally since March. Breadth has given a sell signal each time that $SPX has approached the top of the trading range and then fallen back. Today was no exception, as yet another sell signal has been issued after the $SPX failure to break out on the upside.



Volatility indices have generally declined, with both $VIX and $VXO near yearly lows earlier today. Declining volatility is bullish for the broad stock market.



In summary, $SPX has been unable to break out of the trading range. Perhaps Friday's Unemployment Report will provide a catalyst for the breakout. Traders should wait for the breakout before taking speculative positions.

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.