In the last two days, spurred by a myriad of news that was interpreted very positively by the market (economic news in China, potential quantitative easing in Europe, and a recounting of the Fed's moves during the past couple of years), the market had a huge rally.

This rally broke out well above that resistance at 1200 and closed at 1221. So, it appears that the bulls are in charge. There is still the matter of strong resistance in the 1220-1225 area, as represented by the April and November tops. A clear breakout over that level, in theory, could see $SPX rise to 1300.





The weighted equity-only put-call ratio, which is the preferred one of the two at the current time, has now given a buy signal. The standard ratio is on a buy as well.




Market breadth, has moved into overbought territory, thereby canceling out the recent sell signal.




Volatility indices ($VIX and $VXO) have been occasionally probing higher over the past couple of weeks, but the last two days saw $VIX fall back sharply. This places $VIX in a "neutral" reading as far as its predictive value is concerned.




In summary, I don't completely trust this upside breakout. If it had occurred on "natural" terms -- perhaps as a response to a deeply oversold condition -- as opposed to knee-jerk reactions by fundamentalists, I'd be more friendly towards it. However, unless $SPX quickly slips back below 1200, the bulls are in charge and one shouldn't fight the trend. A clear close above the November highs at 1227 should erase all doubts.

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.