This market is moving so fast these days that any commentary must necessarily be written quickly, or when the markets are closed -- the latter in this case. Huge market swings and market rumors are the order of the day. This makes for very difficult short-term trading, since one can easily be stopped out, even if he is using wider stops.

$SPX rallied 76 points from Monday's morning lows to Wednesday's closing highs -- and then gave back 44 points today. $VIX is above 26 and $VXO is nearly at 28, neither of which truly reflects the magnitude of the moves taking place. Resistance and support levels have to be taken rather liberally, as $SPX has probed through levels, only to reverse. The most recent example of this is overhead resistance. $SPX had probed the 1490 level a few times and had not been able to get through there. But yesterday, in what we now find out was a massive short covering rally, $SPX not only probed through 1490, but closed above it. Yet, today, $SPX was down sharply. So, we can now say that resistance is 1490-1500. Similarly, support is at 1430-1440.



The equity-only put-call ratios remain strongly on sell signals. These are intermediate-term indicators, and they will be bearish as long as they continue to rise. Obviously, there is a rush to buy puts now, but the real market bottom will not come until the last guy has paid top dollar for the last put.



Market breadth had been abysmal, reaching extremely oversold levels. That was as much responsible for the rally we saw early this week as anything else. Oversold conditions, such as the ones we saw in breadth, often result in sharp, but short-lived rallies -- and that's what we had. Most of that oversold condition was relieved by the rally, although today's action will impart a new round of negative numbers to breadth.



The volatility indices continue to rise and are probing levels not seen since 2003 (when volatility was on its way down, at that time). As most of our readers know, a spike peak in $VIX is a buy signal, but -- in our opinion -- that has not yet occurred. We have been looking for $VIX to at least close below 21 to finalize the peak in $VIX. It hasn't happened. Even though $VIX closed at a new high today, we still think the 21 level is the demarcation line for a buy signal. As long as $VIX remains above there, the market will be on the defensive.



We feel that the true bottom will not be formed until there is a successful retest of the lows. A break below 1380 would mean a true, perhaps long-term, bear market is under way Just remember that oversold conditions can create sharp, but short-lived rallies at any time.

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.