The bulls scored a major victory this week, by engineering a breakout and close above 1950 on Thursday. That completes the "W" bottoming formation. So for now, the near-term outlook is bullish.

Put-call ratios remain bullish. All three of the put-call ratios gave buy signals right at the February 11th bottom -- an excellent bit of timing, especially considering that these are 21-day moving averages.

Even market breadth, which has notoriously been the "weak sister" of the technical indicators for a year and a half now, is getting into the bullish mode. Both breadth oscillators are back on buy signals.

Volatility indices and derivatives have continued to frustrate a lot of market players. $VIX remains relatively high, considering the size of the rally that has taken place since February 11th. Nevertheless, the horizontal line on the chart in Figure 4 shows that $VIX would have to break below 19 to "match" the upside breakout in $SPX.

In summary, the near-term outlook is bullish. With $SPX breaking out above 1950, and the other indicators all bullish to one extent or another, we envision a short-term rally by $SPX towards the bear market downtrend line. However, at that time, a new battle will be joined, and the bears might still come out on top if that trend line stays intact.

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.