In late June and early July, $SPX staged a strong upside breakout, taking the average to new relative highs (and most other major averages followed). This created the very bullish pattern of higher highs and higher lows on the $SPX chart, after the bottom in early June. As the market made these new relative highs, it became extremely overbought. $SPX has backed off about 50 points since July 3rd, alleviating that overbought condition.

Equity-only put-call ratios remain on buy signals. Volatility indices ($VIX and $VXO) have not risen much in the market correction over the past week. That is a generally bullish sign.

In summary, the overbought conditions of a week ago are but a memory now, so if the bulls have an opportunity, it should be right in this area.

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.