By Lawrence G. McMillan

What a difference a week makes. Just one week ago, $SPX had sold off sharply, but then the bulls said "enough." Institutional cash, which is often deployed heavily at the end of January and the beginning of February, came rushing into the market. In just four trading days, $SPX had recovered all of the losses and had closed at a new all- time high. $SPX bottomed out almost right at 3700 on Friday, January 29th, so that is definitely support. There is also support below that, at 3630. That is the one that I consider more important, because a breach of that level would take the market below its December lows usually the sign of an emerging bear market.

Equity-only put-call ratios are exhibiting some unusual behavior: the two ratios are diver ging. The standard ratio (Figure 2) is plunging to new lows and is thus on a buy signal. The weighted ratio is slowly rising and is thus somewhat bearish.

Breadth improved greatly this week. The breadth oscillators are once again in overbought territory, which stopped out the sell signals of a week ago.

Volatility has been very reactive to recent market movements. When $SPX had its (what turned out to be) mild selloff last week, $VIX exploded from 21 to 37. Then it gave a new $VIX "spike peak" buy signal at the close of trading on January 28th, and it has since imploded all the way back down to 22.

So the stock market has regained its upward momentum, and bullish positions should be maintained because of that. In addition, modest bearish positions can be taken if confirmed sell signals emerge, but don't go overboard with the bearish trades unless $SPX breaks support.

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