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By Lawrence G. McMillan

The correction that took place following June option expiration (the 3rd Friday) lasted just about a week, and prices have rallied since then. That decline bottomed out at about 4330 very nearly the peak of last August. So that is the first support level now. There is further support at 4200, the level which had represented resistance for so long. Any pullbacks should find ample support there, but if $SPX were to fall back below 4200, that would represent a very bearish development.

Equity-only put-call ratios continue to plunge as the rally brings in ever more call buying. The fact that these ratios are hovering near the bottom of their charts means that they are overbought. However, that is not a sell signal. They won't generate sell signals until they roll over and begin to trend higher.

Breadth of the market continues to be a somewhat unreliable indicator at the present time. As a result, we are not basing any positions on the breadth oscillator signals now. For the record, both breadth oscillators are once again back on buy signals. The NYSE oscillator is in modestly overbought territory, while the "stocks only" oscillator generated a "true" buy signal this past week and is not yet overbought.

$VIX has sort of settled in near the 14 level, as it has traded essentially in a range between 13 and 15 for nearly a month now. This is a low $VIX reading, compared with where it's been over the past three-plus years. That might make $VIX overbought (since it is at a low level), but there really isn't any danger to the market unless $VIX begins to move swiftly higher i.e., unless it returns to "spiking" mode. Meanwhile, the trend of $VIX remains downward, and so the trend of $VIX buy signal (for the stock market) remains intact.

So, the picture still remains bullish and we are thus carrying a "core" bullish position. We will trade other confirmed signals around that, except for breadth.

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

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