There has been only one down day in September so far. This has confounded "conventional" wisdom that expected September to be a bearish month. It still could be, though, for the end of September is usually the most bearish part.

$SPX has now risen to near the 1130 level -- the level that repelled rallies in both mid-June and early August. It is entirely possible that we could see $SPX push through 1130, only to stall shortly afterwards.





The reason we are suspicious of a breakout is that there are some extremely overbought conditions, and there are some divergences beginning to appear. Consider the following: market breadth oscillators are on buy signals but are very overbought.
Also, breadth has been negative on two recent days, even though the major indices rallied back late in the day.




The intermediate term indicators are more constructive. Equity-only put-call ratios have both rolled over to buy signals recently.




Volatility indices ($VIX and $VXO) are in downtrends, so that is bullish as well.




Perhaps one scenario is likely, that will get the indicators back in synch with each other: that would be a short-term selloff to alleviate the overbought condition, followed by a strong upside move in line with the bullish intermediate-term indicators.

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.