First and foremost, the $SPX chart still has a bearish look to it. This oversold rally has been very strong; there's no doubt about that. But oversold rallies often die out at about the declining 20-day moving average, or maybe just a little above that. This rally has just reached that level.

Equity-only put-call ratios have exploded off their multi-year lows and are racing higher at a quick pace. The weighted ratio has reached multi-year highs and is oversold. Despite that, both of these ratios will remain on sell signals until they roll over and begin to trend downward.

Market breadth has been strongly positive this week, and both breadth oscillators finally rolled over to buy signals.

$VIX has given two recent "spike peak" buy signals, and the term structure signals are bullish, too. Despite these buy signals, it should be noted that $VIX is still in an uptrend at least for now. When volatility is in an uptrend, that is not good for stocks.

In summary, there are a lot of short-term buy signals that have evolved out of massive oversold conditions that existed a week ago. Those oversold conditions have abated, but the buy signals and the short-term uptrend in $SPX remains in place. Meanwhile, the intermediate-term picture is not as rosy. The $SPX chart is still in a downtrend until, at a minimum, the 20-day moving average begins to rise again. The equity-only put-call ratios are still on sell signals, and $VIX is arguably still in an uptrend. So, we are trading the long side cautiously for now, but we remain wary of potential downside risk should this rally fail at or just above the 20-day moving average.

Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, and publishes several option trading newsletters.