The stock market continues to oscillate between roughly 1430 and1490, basis $SPX. It has not been able to break out of that range for more than a day, on a closing basis. Eventually, it will, of course. But until we have confirmation of a breakout, we are going to continue to treat this as a "trading range market." With the FOMC Meeting coming up next week, we want to be especially careful of a false breakout. It's possible that, if $SPX remains near the top of the range, it might probe on through on a Fed rate cut, but then fail to hold it.



The equity-only put-call ratios remain on the buy signals generated nearly three weeks ago (see charts, above). These are important intermediate-term indicators, but they have been more or less alone in their bullish stance.



Market breadth has been rather schizophrenic, just following the market back and forth . The most recent breadth signals were sell signals, generated last week. It's somewhat negative that this week's strong rally hasn't pushed them to "overbought."



Finally, the volatility indices ($VIX and $VXO) have remained at high levels, near 25. This has kept a persistent bearish spectre over the market. Perhaps $VIX will drop after the FOMC Meeting next week, but that is not a certainty.



In summary, if a breakout occurs, one can feel more comfortable taking a directional position. Until then, aggressive accounts can use short-term overbought/oversold indicators and systems to trade this volatile market within the trading range.

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.