First and foremost, the technical indicators are bullish. The chart of $SPX, for example, continues to trend upward, supported by a rising, trailing 20-day moving average.

Equity-only put-call ratios are trending lower, and that is bullish for stocks as well.



Breadth has been positive, but not spectacular in this December rally. Breadth indicators are on buy signals, but overbought.



Volatility indices ($VIX and $VXO) have continued to decline sharply as the December rally has progressed. As long as the trend of volatility is lower, that is bullish for stocks.



In summary, the market's strong December has pushed all of the indicators into overbought territory. That is to be expected in a strong bullish phase.



The current overbought condition means that a small amount of selling could snowball quickly into a rather large, swift market decline. If such a decline holds at support ($SPX 1220) or above, then it will not matter much, but if that level gives way, things could get nasty very quickly.

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.