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By Lawrence G. McMillan

Stocks had been drifting in a tightening range, causing realized volatility to shrink, and boring the heck out of traders -- even though intraday swings were still present. Then with some earnings announcements this week, $SPX first dropped 65 points one day and then rose 80 two days later.

This hasn't had much effect on the $SPX chart, though, as resistance at 4200 is still a major factor. One could say that $SPX is in a broad trading range between 3760 and 4200 and has been since last October or November. Within that range, there have been some trading swings, of course. In the near term, there is still support in the 4050-4070 area.

A new negative development is that the equity-only put-call ratios have rolled over to sell signals. From Figures 2 and 3, one can see that they have curled upward over the past week or so. But this sell signal is not just an observation by one's naked eye; it is also confirmed by the computer programs that we use to analyze these charts.

Breadth had gotten very negative, even though $SPX was trading more or less sideways. Breadth was negative for seven days in a row . That caused the breadth oscillators -- which had been on sell signals since April 10th -- to descend into oversold territory. Then the big positive day on April 27th pulled them back up to potential buy signals.

Despite the negativity of some of the signals discussed above, the signals surround $VIX and volatility remain generally bullish for stocks. $VIX rose modestly when $SPX turned down in the early part of this week -- but not by enough to cause any "problems."

With $VIX remaining subdued, the trend of $VIX buy signal remains intact. It is an intermediate-term buy signal which occurred in the circle on the chart in Figure 4, back in March. This buy signal would be stopped out if $VIX were to rise above its 200-day Moving Average, which is at 23 and declining.

Overall, we are not taking a "core" position because $SPX remains in a trading range. However, we will take positions in line with individual indicator's signals.

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

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