By Lawrence G. McMillan

Stocks are continuing to rally, and for the first time in a while there is a pattern of higher highs and higher lows, at least in the short term. The major intermediate-term trend of $SPX is still negative (outside blue lines on the chart in Figure 1), but the short term has accomplished some objectives. For example, the gap on the chart at 4017 has been closed.

However, there are still problems ahead for the market. There is heavy resistance in the 4070 4170 area that was a trading range in early June (red square on the chart). A breakout above 4170 would be very impressive.

Equity-only put-call ratios remain on buy signals, according to the computer programs that we use to analyze these charts. There is some question re the standard ratio, but the weighted ratio looks to be solidly on a buy signal as it has plunged to new relative lows.

Market breadth has been just good enough to maintain breadth oscillator buy signals. In fact, in the last two days, breadth has expanded tremendously. That places the oscillators in solidly bullish, albeit overbought, territory. It is a good thing, though, when these breadth oscillators get overbought at the beginning of a new leg upward by $SPX.

$VIX has continued to decline. So now we are interested in the trend of $VIX the intermediate-term signal that is gleaned from the $VIX chart. At the current time, $VIX has fallen below its 200-day Moving Average, and that is enough to terminate the sell signal that has been in force for a while. If $VIX were to cross back above the 200-day MA, that would reinstate the sell signal. However, this is not yet an intermediate-term buy signal.

In summary, we have terminated our "core" bearish position for now because $VIX is no longer in an uptrend and because $SPX has risen above 4020. However, it could easily be reinstated if those conditions reverse. Meanwhile, the buy signals that have emanated from our other, internal indicators over the past few weeks have begun to produce results, and so we are monitoring those signals -- rolling up, raising stops, or exiting where appropriate.

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