By Lawrence G. McMillan

After reaching new all-time highs a week ago, the market has stumbled a bit this week. The overbought conditions are beginning to take a toll, but the overall trend is still bullish at this point.

There is support at this week's lows roughly 4120, with stronger support just below 4000 (the March highs), and the major support at 3850-3870. If 4000 is penetrated that would be a short- term negative, and if 3870 is penetrated that would be a major change of trend.

Equity-only put-call ratios are still dropping. Hence, they are on buy signals. This is more evident with the weighted ratio (Figure 3) than with the standard ratio.

Breadth has become a problem for the market. It hasn't been strong for a while, but now the breadth oscillators (NYSE and "stocks only") are both on sell signals.

Volatility remains a bullish indicator for stocks. Even with $SPX struggling a bit this week, $VIX has not even risen enough to return to "spiking" mode. That would be the first sign of trouble from $VIX. Meanwhile, the trend of $VIX is still lower, and that is bullish for stocks.

In summary, we are still maintaining a "core" bullish position because of the positive trend of $SPX and the downward trend in $VIX. We will, however, act on confirmed sell signals -- taking small bearish positions around this bullish "core."

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