The market remains in a trading range. $SPX continues to be bounded by the 1490 support level and the 1540 resistance level. The bounce off of last week lows near 1490 has propelled $SPX to 1525, but it has stalled. Whether that "stall" is due to the holiday atmosphere of this week, or to something more serious (such as apprehension over tomorrow's unemployment report or the recent sharp decline in T-Bond prices), will probably only become clear next week when the majority of traders are back at work.



The equity-only put-call ratios continue to remain on sell signals. They are our most bearish indicator and are also one of the most reliable. Hence, we would be reluctant to turn bullish while they remain in this state. Since they haven't wavered from their bearish opinion, we expect that this market will not be able to break out, even if it tests the 1535-1540 area once again. I suppose it's possible that, eventually, after enough movement withib the trading range, the put-call ratios could roll over to buy signals, but that is not in the picture right now.



Market breadth (advances minus declines) has been very positive over the past week, since the rally off the 1490 support level. As long as breadth stays positive, the market can continue to rally, but as soon as it falters from the overbought breadth levels, that would be negative. This also lends itself well to the trading range scenario as breadth could remain overbought during a test of the upper end of the range.



Volatility indices ($VIX and $VXO) continued to decline this week, and that means they are in a short-term bullish mode. Even so, they are still near 15, and bears can point to the fact that $VIX is now trending higher when you look at its 20-day moving average (see Figure 4). Part of this rise in $VIX continues to be a result of increased volatility in the underlying $SPX index. The fact that we're in a trading range hasn't dampened actual volatility as there have been rather large daily trading ranges on most days.



In summary, this is still a trading range market. The indicators are turning a bit more bearish as this rally proceeds off the 1490 levels, but that fits well within the trading range scenario.

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.