By Lawrence G. McMillan

The heavy resistance in the 3870-3950 area has repelled several recent rally attempts. This past week, there was one day with a monster rally of over 125 points from one day's low to the next (trading) day's high. However, the last three days have wiped out that rally, and more. That remains as a formidable resistance area. Meanwhile, it seems likely that support at 3700 and perhaps 3630 will be tested. As long as those hold, one could contend that $SPX is trading in a very volatile manner within a relatively wide trading range, from 3630 to 3950, at the edges.

The equity-only put-call ratios have finally begun to rise at a strong rate, and thus they are on confirmed sell signals. They are still quite low on their charts, so they should have a ways to go before these current sell signals dissipate.

Breadth has deteriorated quite badly, and the breadth oscillators have descended into an oversold state. That alone is not a buy signal, though, as breadth would have to improve before a buy signal is generated. So their sell signals remain intact at this point.

Volatility has generally remained in the bullish camp for stocks. There is a new $VIX "spike peak" buy signal in place. Meanwhile, $VIX rose above its 200-day moving average, but that is tolerable as long as the 20-day moving average doesn't follow suit.

Overall, our near-term outlook is still bearish, but there are signals on both sides and some oversold conditions are building. If $SPX remains in the broad 3630-3950 trading range, there will likely continue to be very volatile days. A breakout of that range in either direction should be significant and would have some serious follow-through.

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