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By Lawrence G. McMillan

The key to whether the market is bullish or bearish is $SPX support at 4370. Yesterday (August 19th), $SPX traded right down to that level and bounced from there again. That is the third time in less than a month that $SPX has bounced off of that level. Hence, it is valid and substantial support. If it gives way, there will likely be surge of selling. But as long as that support at 4370 holds, the $SPX chart is still bullish, with moving averages trending upward.

Equity-only put-call ratios remain on sell signals. They appeared to be curling over last week, but the computer analysis programs were adamant that the sell signals were still in place.

Market breadth has deteriorated badly. Not only are both breadth oscillators on sell signals, but they have now descended into deeply oversold territory. That means a buy signal lies in the somewhat near future, although oversold does not mean buy.

The $VIX "spike peak" buy signal of July 20th was nearing its 22-day "expiration date" this week, when it was stopped out on August 18th, by the fact that $VIX returned to "spiking mode." Now, just one day later, a new $VIX "spike peak" buy signal has been confirmed.

So, we have mixed signals, accurately reflecting the dichotomy between the strength of $SPX and the weakness of the "average" stock. We will trade confirmed signals in either direction, within the proviso that the overall "core" position should remain bullish as long as $SPX holds above support at 4370.

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

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