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By Lawrence G. McMillan

Stocks continue to struggle after $SPX broke down through the 3900 support level a week ago. The end of the trading year typically brings with it a short-term rally, classified as the "Santa Claus Rally" by the late Yale Hirsch.

There is now resistance in the 3900-3940 area, where support had previously existed. Above that, there is a major congestion area all the way up to the resistance at 4100, where the last major rally failed at the downtrend line of this bear market. As for support, there should be support near 3700, and then at the yearly lows at 3500.

The market internals are generally negative, although some are oversold. For example, the equity-only put-call ratios are still moving higher, indicating that they remain on sell signals. They are relatively high on their charts, which is an oversold indication, but as we know, "oversold does not mean buy."

Breadth is similar to the equity-only indicators: both breadth oscillators are on sell signals, and both are in oversold territory. Despite some heavy selling recently, there have not been any "90% down days."

Despite the negativity of the above indicators, the $VIX indicators are mostly positive. To a certain extent, $VIX is in a world of its own, continuing to stay low even while $SPX is selling off. The $VIX "spike peak" buy signal remains in place, as does the trend of $VIX buy signal.

We continue recommend holding a "core" bearish position because of the downtrend on the $SPX chart (and especially since support at 3900 has been broken). We will, however, trade other confirmed signals around that "core" bearish position.

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

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