The trend of the S&P 500 (SPX) is negative, and just last week saw a new lower low to go along with the repeating pattern of lower highs and lower lows, says Lawrence McMillan of Option Strategist.

The trend will be negative until that is reversed.

An oversold rally is underway. There is a chance that this might be the beginning of a new leg upward in the bull market, but that seems very unlikely to me. This oversold rally has run into resistance at the 4150 level. If it should more higher, there is strong resistance at 4300.

Equity-only put-call ratios remain on buy signals, as they continue to fall. The weighted ratio is falling more rapidly than the standard ratio. The buy signals will remain intact until the ratios once again roll over and begin to rise. Market breadth has been generally positive over the past ten days. As a result, both breadth oscillators are on buy signals.

Even so, just one or two days of strongly negative breadth could cancel out these buy signals. COBE Volatility Index (VIX) has fallen as this oversold rally has developed. It is now below 26 for the first time in about a month. The "spike peak" buy signal remains intact. It began on May 11 and will be in effect for 22 trading days, unless stopped out by $VIX re-entering "spiking" mode.

The trend of $VIX, however, has not changed and remains upward for $VIX (and thus bearish for stocks). This bearish indicator would turn neutral if $VIX were to close below 23. In summary, we continue to hold a "core" bearish position because of the trends of $SPX (down) and $VIX (up). We are, however, trading confirmed short-term signals around that "core" bearish position.

Learn more at The Option Strategist.