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By Lawrence G. McMillan

$SPX has finally broken down below support. A serious bout of selling occurred yesterday (February 25th), demonstrating for the first time since last September that the bears might actually have some gumption.

Below current levels, there is support at 3700 (the late January lows) and then the major support at 3630 (the Decembers lows). If $SPX falls below 3630, that would be a major bearish development and would probably indicate that we are in a bear market.

Equity-only put-call ratios have finally started to rise once again. This is most evident in the weighted ratio, which has been rising for a few days -- and rising at a pace that is more than just "drifting slightly upward." Thus there is a signal from the weighted ratio, but not so much from the standard ratio -- which continues to move sideweays.

Market breadth deteriorated badly this week, and both breadth oscillators are thus back on sell signals.

Volatility finally took notice of the market's decline, and $VIX rose over 7 points and closed near the high of the day on Feb 26th. If it forms a peak there, that will be a new buy signal, but as long as $VIX is rising, that is a problem for the stock market.

The $SPX chart -- our most important indicator -- has been wounded a bit by falling below the January highs and by the fact that there is considerable overhead resistance at 3900-3950. However, that is not a bull market "killer." It could trade between that resistance level and 3630 and remain in a neutral state. A breakdown below the December lows at 3630 would likely indicate that we have entered a bear market, though. Along the way, we will trade confirmed signals, as they occur.

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

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