The market was marching along towards new highs (albeit slowly) when some modest selling was accompanying by a big increase in volatility. The combination now has the market on its heels.

$SPX ran into resistance in the "usual" area between 2100 and the all-time highs of 2135. It has broken support at 2090 and 2080, and now support at 2040 looms large.

Equity-only put-call ratios have continued to remain on buy signals, despite the recent pullback in the broad market.

Market breadth has been quite weak this week, and so both breadth oscillators rolled over to sell signals. It didn't happen immediately, but after three days of selling, the previously positive oscillators had reversed direction.

Volatility indices exploded this week, even though the decline in $SPX was relatively small. That is an unusual combination, and it indicates that something unusual was going on. As long as $VIX is above 17, it holds a certain negativity for stocks.

In summary, the bullish case hinges on $SPX remaining above support at 2040. If that gives way, then there would be very negative consequences. Anecdotally, I continue to feel that there are way too many shorts out there, and I'm a bit surprised that they have even gotten this "bone" tossed to them, but I think that lends credence to the bullish case, eventually. However, anecdotal evidence does not overrule the indicators, so we will follow the indicators while holding our opinion in check.

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.