Last week we commented that the bears had fumbled the ball, and the bulls had control.  Well, this week we could almost say the opposite. The bulls were able to rally the broad market to new 6-year or all-time intraday highs, but that was it -- and it was not enough.  To confirm a new bullish leg to this market, in our opinion it was necessary to see $SPX clearly break out above the old tops near 1430.  While it probed above there intraday, and there was a modest new 6-year closing high, there was not a clear breakout.  The market appears to be stalled at this level.  If it can't push through, then perhaps a retest of the 1408 support will soon take place.  That would mean that the broad market is in a trading range between 1408 and 1430, rather than back in a bullish mode.

The equity-only put-call ratios have not given buy signals.  To the naked eye, they appear to be rolling over.  However, since we have computer analyses of these charts, it is better to rely on them.  In fact, the computer "says" that these are not yet on buy signals.  However, you can see from just looking at them that such buy signals could materialize, especially if the market were to convincingly break out on the upside.

Market breadth (advances minus declines) has not been particularly strong on this most recent rally.  That is probably why the rally has had trouble breaking out.  Yes, breadth was strong enough last week to cancel out recent sell signals.  However, now breadth has deteriorated again, and the sell signals are reinstated.

As the market rallied, the volatility indices $VIX and $VXO declined to nearly historic lows.  They have not risen much since then, even though the broad market has had some trouble.  So, option traders are not particularly worried about the market declining from here -- or at least they're not paying up for puts (which is primarily what makes $VIX rise over the short term).

Finally, let's talk about expiration for a minute.  Tomorrow is January option expiration.  As we entered the week, there was a possibility of strong arbitrage buy programs on expiration day.  But as the week has progressed, these buy programs have diminished -- to the point where there really isn't any particular bias for expiration day.

In summary, the longer that $SPX goes without breaking out, the more likely it is that a trading range environment has developed.  If so, we would await a clear breakout above 1430 or below 1408 before taking an aggressive position in broad market index options.

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.