The technical indicators remain positive, although some are now reaching overbought status.  So, a short-term correction is probably due, but as long as technical support holds, it should not harm the intermediate-term uptrend.

Last week's correction lasted a mere two days, with $SPX testing support at the 1290 level a couple of times.  Once it was clear that $SPX was not going to violate that support level, the market took off again to the upside -- and has been rising rather steadily ever since.

This week's rise may be aided by expiration-related activity.  There is definitely a bullish bias to September expiration, since there is a preponderance of in-the-money calls  as compared to in-the-money puts. In fact, if $OEX is above 610 on Friday's close, substantial buy programs could result (it rose as high as 609 on Wednesday).  In fact, as long as $OEX is above 605, there should be a somewhat bullish bias to this expiration, which is a major quarterly expiration.

The equity-only put-call ratios remain on buy signals.  Surprisingly, they are still rather high on their charts, although they have finally started to trend downward more strongly recently.  These will remain on buy signals as long as they are declining.  Since these are intermediate-term indicators, we think that the market eventually has more room to run on the upside (as long as $SPX 1290 holds).  So $SPX and put-call ratios are intermediate term bullish.

Market breadth has been quite strong.  As you might expect, this much positive breadth is a two-edged sword.  On one hand, it's constructive that the advance is broad, but on the other, the market is overbought.  It is the latter fact that is one of the short-term cautions that we see for this market.

The volatility indices are very overbought.  In our last newsletter, we cautioned that with $VIX this low, the market could be vulnerable. Now $VIX is even lower.  An actual sell signal from $VIX wouldn't occur until it established something of an uptrend -- more than the 2-day rise in early September.  So, as long as $VIX remains low, the market can rally, but in an overbought state.

In summary then, we have $VIX and breadth as overbought indicators -- warning of perhaps a short-term problem -- but the intermediate term indicators are bullish.  If and when a correction develops, we would view it as a buying opportunity unless $SPX fell below 1290.  In that case, a bearish attitude would have to be taken.

Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, recognized as essential resources for any serious option trader's library.