Last month's sharp market selloff is still having some lingering effects on the stock market. Namely, a lot of people turned bearish at that time and still haven't turned back to bullish yet. As long as they remain skeptical, we think this market will continue to rise. It will only be when they convert back to bullishness that the market will be in danger.

$SPX has now carved out a nice pattern of higher highs and higher lows on its chart. The trend line connecting those lows is at about 1430, and that should represent short-term support for the index. Major support is below that, at 1410. We expect the index to challenge its recovery highs at 1460. The $SPX chart is bullish, and a breakout above 1460 would likely bring a flood of money back into the market.



Equity-only put-call ratios have continued to fall since giving buy signals just two weeks ago. There are intermediate-term indicators, and they are strongly bullish currently. Once they develop this kind of momentum, they generally don't turn around quickly, so we look for them to be correctly bullish for some time to come.



Market breadth continues to oscillate with the market. It had reached heavily oversold levels when the market rallied for eight straight days. One day of decline alleviated that, but we are not getting any convincing signal from breadth right now, as it continues to be a confirming indicator at best (rather than a leading one).



Finally, the volatility indices continue to be in downtrends, which is also bullish. If $VIX were to close above 15, that would penetrate the trend line (see chart, page 10). Moreover, the VIX futures are maintaining a bullish picture as well.



In summary, we have no sell signals from our indicators, and with the $SPX chart and the put-call ratios being quite bullish, we look for higher prices to prevail. This is one of those markets where the $SPX chart is one of the best indicators, so that is the main thing to watch now. As long as its uptrend remains intact, the bears really don't have a case.

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.