The massive oversold condition that existed at the end of last week has spurred a rally this week. when the market is as oversold as it got last week, it usually rallies back slightly beyond its 20-day moving average. That moving average is currently at 1350.

The equity-only put-call ratios remain on sell signals. Breadth has been slightly positive this week, but the breadth indicators continue to remain on sell signals and are still in oversold territory.

Volatility indices ($VIX and $VXO) took on very negative tones when they rose sharply last week. $VIX above 21 is bearish for stocks.

In summary, we are in the midst of an oversold rally. Unless there is more improvement in the intermediate-term indicators, this rally is just a short-term affair.

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.