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By Lawrence G. McMillan

We are well into the new year of trading, and the seasonally bullish period surrounding year-end has passed. The Santa Claus Rally produced a small gain for $SPX of 30 points less than its historical average of a 1.1% gain, but a gain nevertheless. If it had been a loss, that would have been another negative for the stock market.

$SPX is trapped in a trading range between roughly 3760 and 3900. It has been in this range since December 16th, and both bulls and bears are getting a bit frustrated with it. The fact that there is also resistance at 3940 and support at 3700 means that even a breakout from the current range might just run into more of a roadblock at those levels. However, a move above 3940 or below 3700 should be one that provides some strong momentum and continuation.

Equity-only put-call ratios continue to rise and are near the tops of their charts. That means two things: 1) they remain on sell signals as long as they continue to rise, and 2) they are in an oversold condition when they are this high.

Breadth doesn't seem like it has improved much. However, when there has been a day of positive breadth, it is quite overwhelmingly positive. As a result, both breadth oscillators have crawled into buy signals.

The volatility complex, on the other hand, generally remains positive in its outlook for stocks. First, the $VIX "spike peak" buy signal of December 13th is still in place. Second, the trend of $VIX buy signal remains intact.

We continue to maintain a "core" bearish position because of the negative trend of the $SPX chart and because of the breakdown below 3900. We will, however, trade any other confirmed signals around that core position.

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

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