In the last week, the tenor of the market has changed. For the first time in quite a while, a day of heavy selling (Wednesday) was followed by another day of heavy selling.






The decline in $SPX has broken through the trend line extending back to the March lows (Figure 1). $SPX broke support at 1130, but found support -- so far -- at the late December lows of 1115. The 1085-1115 area is a rather broad support area, and this initial decline should find support in that area (even if it declines farther later).




The equity-only put-call ratios have just today rolled over to sell signals (see Figures 2 and 3). Market breadth indicators are now both on sell signals as well.




$VIX rose sharply, by 19%, as did other volatility indices. On the $VIX chart, that is a breakout (see Figure 4). It's way too early to say the $VIX has established an uptrend, but it has certainly broken the current downtrend.




In summary, the market has taken a serious shot to the chin. The previous, unsustainable overbought condition is being relieved, and $SPX may try to rally back a bit from here, but with the technicals turning bearish (break of $SPX support at 1130, break of the uptrend line, put- call ratio sell signals, breadth sell signals, and $VIX breaking its downtrend), this is likely to be a bigger decline than just the two days we've seen so far.

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.