The broad market successfully tested support and moved higher. Specifically, $SPX dropped all the way down to 1410 (intraday), and then managed to stage a rather impressive rally for the remainder of the week. The 1410 area, of course, is what we had previously mentioned as the important level -- and it remains so, although now it is well below current prices. The chart of $SPX has taken on a bullish shape, with higher highs and higher lows. Some are saying that this past week was not representative of the "true" state of the market since it was a holiday week. That sounds more like an excuse than an analysis. What we do know is that $SPX has exceeded the highs of a couple of weeks ago, and that makes the chart bullish. The next important resistance is the February highs at 1460.



The equity-only put-call ratios have finally succumbed and are now both on buy signals. This is an important intermediate-term development. Moreover, since they're coming from such high levels on their charts, these should be strong signals as well.



Market breadth continues to be a lagging indicator. We have always contended that a new bullish phase should ideally be accompanied by overbought breadth readings, and so we don't see a problem with the oscillators being overbought now.



Finally, the volatility indices have fallen this week, confirming the bullish nature of the market. Furthermore, the volatility futures and options are showing a bullish construct as well -- for the first time in over
a month.



In summary, this looks to be a bullish market that can continue higher for some time. There is always geopolitical risk and the risk that "too much" bullishness will occur again. But for now, there are seemingly plenty of doubters and so we think the market will move higher.

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.