$SPX broke out to new highs, and that is bullish, but severe overbought conditions still exist. $SPX has support at 1750-1770, the range it traded in for a couple of weeks. Also, there is further support at 1730.

Equity-only put-call ratios are on buy signals, but are in extremely overbought territory. Breadth has been relatively weak for some time now. For example, $SPX is making new highs, but cumulative breadth is not. Thus, a negative divergence has arisen.

Volatility indices ($VIX and $VXO) continue to hover at very low levels. Thus, they are overbought in the same sense that the put- call ratios are overbought. However, stocks can continue to rise as long as $VIX remains low.

In summary, the overbought conditions are adding up. Despite the new highs in $SPX, we continue to feel that a correction -- sharp, but short-lived -- could take place soon.

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.