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By Lawrence G. McMillan

A significant battle has developed between the bulls and the bears. There is resistnace at 2425 and support at 3310-3330. A closing price breakout from that range should be significant, especially on a close below 3280. Unless there is such a breakdown, the $SPX chart can still be considered to be bullish.

Having said that, there are a number of sell signals that are in place. This is slightly reminiscent of this past February, where we were accumulating sell signals, but $SPX was merrily drifting along at new all-time highs. Then the bottom fell out. Currently, we have these sell signals, but support has held (so far). If it gives way there could be some severe downside to come.

Equity-only put-call ratios remain on sell signals, as they continue to rise. These sell signals emanated from extreme overbought conditions, so one would expect them to be strong.

Market breadth has been rather tame lately, as there haven't many days of strong positive or strongly negative breadth recently. Even so, both breadth oscillators remain on sell signals at this time.

Implied volatility ($VIX) remains a positive factor for the stock market. The $VIX "spike peak" buy signal of September 4th is still in place, and now $VIX has fallen back below its 200-day moving average.

In summary, we have a mix of signals. On the bullish side is the fact that $SPX is holding above support and that the $VIX indicators are bullish. On the bearish side, there are quite a few sell signals, however.So, we are trading these indicators from both sides, especially while $SPX remains in this rather tight trading range. A breakout from the range will likely require some adjustments to our positions.

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

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