The market has quickly become extremely oversold again, and thus short-lived rallies are possible. In the bigger picture, bears see a break of the recent uptrend dating back to early August. Bulls see a successful retest of the lows. A move to new lows below 1100 will prove the bears right; otherwise, the bulls still have a chance to rescue the market.

The equity-only put-call ratios have been on buy signals for a few weeks but they are beginning to weaken now.

Breadth indicators gave sell signals this past Monday, and are now extremely oversold.

Volatility indices rose sharply again, remaining in a generally bearish mode. Another spike peak buy signal would be short-term bullish.

In summary, the last two days have violated some important technical levels, but they have also generated yet another severe oversold condition. The next short-term rally may tell a lot about the condition of the market. If it cannot carry beyond 1160, then the trend is bearish, and we would look for a bottom sometime in October.

Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, and also publishes several option trading newsletters.