By Lawrence G. McMillan

Despite deteriorating internals in the market, $SPX plowed ahead to register a new all-time high on 13 of 14 consecutive trading days.  That streak was interrupted yesterday.  

But there is a different story brewing in the broad market, as evidenced by the small-cap stocks.  The Russell 2000 ($RUT; IWM) is off nearly 8% from its late-June highs.  This has dragged the breadth of the market down to levels usually associated with a major, rapid decline -- which is what is going on beneath the surface of the ever-bullish $SPX.  

Equity-only put-call ratios continue to rise, as there is more put volume than we've seen in some time.  Obviously much of that increase in put volume is coming from IWM-type stocks.  These put-call ratios will continue to be on sell signals as long as they are rising.  

Breadth is the indicator that is most reflective of what is going on with the large number of stocks, as opposed to just the 100 in $NDX, which are heavily influencing the 500 in $SPX.  Breadth oscillators are on sell signals, but they are already oversold.

Despite the generally negative put-call ratios, breadth, and even new highs vs. new lows, the volatility complex has remained friendly to the stock market. $VIX is operating on a new "spike peak" buy signal and the trend of $VIX is downward, which is bullish for stocks.

In summary, since our main indicator is the price chart of $SPX, we remain bullish.  That is reinforced by the fact that the $VIX chart is trending downward.  The other indicators present a more bearish picture, though, so we will trade confirmed sell signals against that basic bullish stance.

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