By Lawrence G. McMillan

Stocks recently ran into some trouble at the 4540 area on the $SPX chart, after having bounced strongly off of the support at 4330 in mid-August. So, those two levels are what is containing the market at the moment. There is further resistance at 4600 and further support at 4200, but it seems to me that those 4330 and 4540 levels are what is going to determine the next breakout and thus the next move with decently strong momentum.

Meanwhile, the equity-only put-call ratios remain solidly on sell signals and are our most bearish indicator at this time. They both rose to new relative highs in the last two days, and as long as these ratios are climbing, they will be bearish for stocks. Only when they roll over and begin to decline will they revert to buy signals for the stock market.

Breadth has turned negative as well. This has rolled both breadth oscillators back over to sell signals, meaning that the last buy signal was quite short-lived. That's another whipsaw of sorts for this indicator, which has been subject to these quick reversals of signals often over the past year and a half. Both breadth oscillators are currently negative but not yet in oversold territory.

The indicators discussed above are what we generally call "market internals." They are mixed-to-negative. However, the volatility-based indicators are much more bullish and have been all along. $VIX traded all the way down to the yearly lows at 13 at the end of last week. Thus the trend of $VIX remains downward, and that is bullish for stocks. Moreover, the "spike peak" buy signal that was generated on August 11th is still in place.

In summary, a bullish case can be made for the $SPX chart as long as it holds above 4330, so we are holding a "core" bullish position (with a small delta). Then, we are trading other confirmed signals around that "core" position.