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By Lawrence G. McMillan

Stocks have moved back and forth through several supposed minor support and resistance levels this week. As a result, the picture has developed into that of a wider trading range, awaiting a breakout in one direction or the other. On the upside, there is double resistance at 4100, where the market topped out twice in early December. On the downside, there is support in the 3760-3800 area, where the market bottomed in late December.

The internal indicators are overwhelmingly bullish, but $SPX has not been able to break out, so that is a major sign of caution. If we get a breakout above 4100, and the internals remains as bullish as they are now, that would indicate that the bear market has gone into hiatus or possibly even ended.

Equity-only put-call ratios remain very bullish as they are beginning to accelerate to the downside. The buy signals that were issued a week or so ago took place from an extremely oversold levels (i.e., the ratios were very high on their charts).

Breadth has been the strongest internal indicator. Both breadth oscillators are on buy signals and are rather deeply overbought. The "overbought" condition is not a problem in the early stages of a new upward advance by $SPX, because it means there is broad participation in the rally.

$VIX has declined slightly as $SPX has rallied through 4000, but it appears that $VIX is reluctant to decline much farther, at least at this point in time. It continues to hover in the 18-19 area, which is the near the lows that were tested several times during 2022.

The negative seasonal pattern that exists in mid-January ends today. There was not much negativity this year. Now we are about to embark on what is normally one of the strongest bullish seasonal patterns -- what we simply call the "January Seasonal."

We are currently holding an out-of-the-money "core" put position because the $SPX chart has not certified that is it bullish. We will also continue to trade other confirmed signals around that position.

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

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