For the second time this month, an apparent breakout failed. First there was the upside breakout to new 5-year highs on $SPX on Friday morning, April 7th -- following the unemployment report. That breakout lasted only a short time (an hour or so) before collapsing. The ensuing selling took the markets down through support, and a downside breakout occurred on April 12. Within a couple of days, that had failed as well, as the market staged a massive rally to wind up right in the middle of the trading range from where it had started. As a result, $SPX is back within the (now slightly widened) trading range, extending from 1285 to 1312 (using closing prices, and little wider using intraday prices).  To solidify the point, today (April 20th), the market once again broke out on the upside, only to fall back within the range by day's end.

Besides $SPX being inside the trading range, we are seeing diverse signals among the other indicators. For example, the standard equity-only put-call ratio (Figure 2) curled upward into a sell signal last week. It has wavered a bit in the last couple of days, though, and might be turning more bullish in the next few days. Meanwhile, its companion -- the weighted ratio --  is still trending downward in a buy signal (Figure 3).

Market breadth (advances minus declines) has swung back and forth with abandon this year. This is symptomatic of the fact that there is no follow-through in this market. It used to be the case that market breadth gave a picture of the underlying tone of the market. Often, a persistent positive breadth preceded a market rally, for example. But recently, breadth just follows the market -- registering huge swings, depending on whether the market is up or down. In any case, breadth is rather neutral right now -- failing to confirm the Dow's +54 rise today.

Finally, volatility ($VIX) is locked in a fairly tight range as well. This week, we've produced a longer-term (2-year) chart of $VIX (Figure 4). $VIX collapsed Tuesday during the big rally. In retrospect, the spike upward and subsequent downside reversal in $VIX last Thursday, April 12, was a valid buy signal. For those with a memory longer than a few months, one would hardly call a rise by $VIX to 13.90 a "spike peak buy signal," but that's just what it was.  Figure 4 shows a long series of declining tops, with a row of bottoms near the 10 area. As time passes, this $VIX triangle keeps compressing down and down, reflecting the continued dampening of volatility in this market.

In summary, one is probably best served by fading every large move in this market -- in line with the feature article we published in The Option Strategist a couple of issues ago.  The fact that, today -- April 20th  -- $VIX was higher and breadth was poor, even though the market is trying to break out on the upside, seems to be a warning sign that the upside might be limited here.  The bears are wounded after Tuesday's big rally. But both the bulls and bears have recovered from wounds quickly this year. So, if the bulls can't capitalize on the price momentum they have, then it's likely that the market will continue to meander in this trading range.

Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, recognized as essential resources for any serious option trader's library.  Sign up today and take an extra 10% off tuition for Larry's 2-Day Intensive Options Seminar on May 20 & 21 in Houston.