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By Lawrence G. McMillan

Stocks have struggled since the beginning of the month, after having traded at resistance at 4200. $SPX has fallen back below the previous breakout level of 4100. Any close below 4070 would be the lowest close since January, and that would be a further negative for stocks. $SPX has probed down towards that level a few times, but has bounced back up each time. Still, a close below 4070 would open the door to a retracement of the entire previous trading range -- down to 3900, or 3800 on a more extreme move.

Many of our internal indicators remain on buy signals, although the group is not nearly as positive as it was a month or so ago. Equity-only put-call ratios continue to decline. From Figures 2 and 3, one can see that both have made new relative lows as recently as yesterday. As long as these ratios are declining, that is positive for stocks.

Market breadth has been all over the place. The bottom line is that the breadth oscillators are now on sell signals.

The volatility complex remains subdued, and that is generally a positive thing for stocks. $VIX itself had a small rally leading up to the CPI report last Tuesday, but it was not enough to return $VIX to "spiking" mode.

Meanwhile, $VIX remains below its 200-day moving average, so the intermediate-term trend of $VIX buy signal remains in place. That 200-day MA is still well above current $VIX prices at 25, and falling slowly.

There really aren't any specific seasonal factors at work right now, except for the fact that February is the worst month of the year.

We are not holding a "core" position at this time because $SPX is not clearly trending either way. We are holding several positions in line with the various signals from our internal indicators, and we will continue to trade those whenever confirmed signals arise.

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

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