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By Lawrence G. McMillan

The selling that began on September 3rd has gained momentum, and as the market has declined, confirmed sell signals have been registered in several areas. There is one major roadblock for the bears, though, and that is that the chart of $SPX is still in an uptrend. In my opinion the support at 3280 is the one that needs to hold. If it doesn't, then the $SPX chart will have succumbed to a bearish pattern.

Equity-only put-call ratios have turned decisively upward and that means they are on sell signals, finally. These signals emanate from an extremely overbought condition that has lasted for weeks, if not months. The massive amount of call buying that was taking place in the overall market had forced these ratios to lows not seen since 2000 (standard ratio) or 2004 (weighted ratio). Normally, sell signals from such extremely overbought conditions would be good ones.

Market breadth, which was never all that great while the market was rising, has not been all that bad as the market declined this week. These remain on sell signals at this time. $VIX generated a "spike peak" buy signal on February 4th. Ironically, that was the same day the market was down sharply, but $VIX was down too -- closing more than 7 points below its intraday high.

The trend of $VIX is in question. $VIX has closed above its 200-day moving average, which is negative, but the 20-day moving average of $VIX remains below the 200-day, which is positive. In practice, there won't be a trend of $VIX until both $VIX and its 20- day MA are on the same side of the 200-day.

In summary, we have both short-term buy and sell signals in place -- more sell signals than buy signals. But until $SPX breaks support at 3280, the $SPX chart will not be bearish. If that happens, then a more severe downside move will be likely. In any case, we will trade the signals we have, both long and short.

This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.

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