After an ugly day on Thursday, August 7, followed by a further decline of 13 $SPX points during the overnight session, stocks have rallied steadily. Most observers are saying that the correction is over and that the bulls are back in charge. That may be true, but the evidence is not completely in favor of the bulls, yet.

For example, this whole week-long rally has only managed to pull $SPX back to its declining 20-day moving average. So, the chart of $SPX has not resumed a bullish stance at this time.

Equity-only put-call ratios are also remaining in a bearish mode. As a result, both of these ratios are moving higher, and they remain on sell signals.

Market breadth, which had been rather dismal throughout the month of July has improved considerably in the past two weeks. As a result, both breadth indicators are on buy signals.

Finally, there is volatility. The volatility indices ($VXST, $VIX, $VXV) have moved sharply in the past couple of weeks. Most importantly, $VIX completed a powerful spike peak buy signal as of last Monday.

In summary, the market is at the crossroads right now. Two indicators are positive: breadth and volatility, while two are negative: the $SPX chart and the equity-only put-call ratios. We remain cautious until there is more improvment in these indicators.

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.