By Lawrence G. McMillan

Certainly the $SPX chart is still bullish at this time, but once again $SPX is trapped in one of those tight ranges — this time between 2460 and 2480. That range has essentially contained the action for the last twelve trading days. In the last nine months, since the election, those tight ranges have generally been resolved by an upside breakout. But until we have verification of that, it is wise to be prepared for a correction.

In any case, a breakdown below 2460 would be a negative development. There is further support at 2450 and, of course, the major support at 2400. As long as $SPX holds above that 2400 support level, its chart will still be intermediate-term bullish. But that still leaves a lot of room from the current $SPX price (2470) for a correction down to 2400.

The two equity-only put-call ratios are at odds with each other presently, with the standard ratio on a sell signal, while the weighted ratio is on a buy signal.

Market breadth has begun to weaken noticeably. “Stocks only” breadth has been negative on six of the last seven days, despite the fact that the Dow is making new all-time highs and $SPX is essentially trading sideways, just below all-time highs. As a result of this breadth deterioration, both breadth oscillators are on sell signals.

Volatility remains extremely low. We are still viewing $VIX below 13 as benign (bullish) for stocks, though, but a break above that level would be a sign to take a more aggressive bearish stance.

In summary, the intermediate-term is positive as long as $SPX continues to close above 2400, but there is a larger chance of a sharp, but short-lived correction.

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

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