"Stock prices continue to behave bearishly," caution David Nassar and Larry McMillan, options experts and editors of the industry-leading The MarketWatch Options Trader.

Here, they offer a bearish market overview along with a bullish look at beverage stocks -- along with an options play on PepsiCo (NYSE: PEP).

The advisors explain, "Rallies can't gain footholds, while declines are deeper and more long-lasting than seem possible. As a result, there is an oversold condition in this market -- one which can spur sharp, but short-lived rallies at any time -- but a true intermediate-term buy signal is not at hand, for none of our indicators have turned bullish.

"The Standard & Poor's 500 turned bearish when the index fell through what had been support at 1490. That was the last piece of the bearish puzzle. The market has been under extreme pressure ever since. Any rallies towards 1490 can be sold, as that level now represents resistance.

"Meanwhile, where is support? It was at 1430-1440, but that level gave way and it seems likely now that the averages will test 1410 (the August closing lows) and perhaps 1370 -- which is multiple support from both August and March.

"Should that give way, then a true bear market would be underway. Support levels are somewhat meaningless in a nasty decline like this anyway; it is more important to monitor oversold conditions.

Options specialist Larry McMillan targets a move to new highs in the S&P 500 and has issued a buy on IBM (NYSE: IBM). In his trading service, The Daily Strategist, he notes, "Despite a pullback in recent days, we expect the major trend upmove to resume. The financial sector has continued to rally, which is positive."

And, he adds, as long as the setback in the energy sector doesn't develop into a major technical breakdown, the pullback to date is "nothing to be overly concerned about, particularly given the longer-term positive trend."

Technically, he notes that market breadth has turned positive – erasing last week's Sell signals. He notes, "For continued confirmation of the bull case, we would expect to see breadth numbers continue to register increased overbought readings."

Meanwhile, he adds, the equity-only put-call ratios continue to trend lower – which is bullish. Overall, he concludes, "We are going to maintain our view of a move towards new all-time highs for S&P 500 above 1,555. And, we expect an upmove to resume soon."

"The FOMC inspired rally has continued and a new trading range may be setting up," says Larry McMillan in his Daily Strategist, an options trading service.

The technician explains, "With continued strength, the breakout of the trading range is starting to have a more valid feel to it – and a new trading range bordered by 1480/1490 on the downside to 1550 on the upside may now be setting up."

Market breadth, he notes, is overbought and he considers this bullish – especially given the fact that we have just seen a 90% up volume day. He suggests, "As we have often seen – a market that is overbought and that adds to the overbought condition (on price improvement) – has positive price momentum in its favor."

He also points out that the $VIX has continued to trend lower, which he considers positive. Further, he adds, the Equity-Only put-call ratios remain bullish as well. Therefore, he states, "Our technical indicators are overwhelmingly bullish; and sector performance is extremely positive based on the Financial and Energy sectors."

"Several factors came together this week to produce a very nasty decline," notes technical expert Larry McMillan. In his Options Strategist Hotline, the advisor notes, "The over-riding technical factor, in my opinion, was the breaking of the 1535 level on S&P 500."

For the technically-savvy he points out, "When both the Dow and $SPX broke out to new all-time highs (was it really only two short weeks ago?), $SPX left behind a well-defined support level at 1535-1540."

This past Tuesday, he observes, "When the market started its sharp decline, it was clearly noticeable that selling accelerated greatly as soon as the 1535 level was penetrated on the downside."

In his assessment, this suggests a formation known as a "false upside breakout?" And he adds, While this false breakout is bad enough, there is another rule
of thumb associated with such things."

He explains, "It is said that if a stock, or an index in this case, stages a false breakout in one direction and then comes back to break out in the opposite direction, then the second breakout is the 'true' one." That, he says, is what has just happened with $SPX.

According to options trading expert Larry McMillan, "Three favorable economic data releases in as many days has changed the fundamental and also technical picture from bearish to moderately bullish in as many days."

In his The Options Strategist trading newsletter he explains, "Resistance at 1515 to 1520 for the S&P 500 was overcome on a closing basis; and new all-time intra-day highs (1552) for the index are once again in sight as a result: though the previous recent high around the 1540 level now represents near-term resistance which will have to be overcome."

The advisor notes that sector leadership has transitioned from "being on the verge of breaking down to staging an upside breakout of sorts/" He states, "A sizeable rally in the energy futures inspired a rally to new highs in the energy sector while the financial sector was able to stage a rally to just shy of new all-time highs, despite a sizeable increase in the ten-Year note yield."

With the S&P 500 nearing a new all-time high, technical expert Larry McMillan assesses the road ahead. Here's his technical view, a look at market leadership, and some favored stocks.

"A new all-time closing high for the S&P 500 suggests that the all-time intra-day highs at 1552 are now the next key level within the context of this market cycle. The positive technical pattern of higher-highs and higher lows has continued.

"Sector leadership remains positive as the financial sector – as seen in the iShares Dow Jones U.S. Broker-Dealers Index Fund (ASE: IAI) and the iShares Dow Jones U.S. Financial Index Fund (ASE: IYF).

"Also positive has been the continued strength in the energy sector as seen in the iShares Dow Jones U.S. Energy Sector Fund (ASE: IYE) and the iShares Dow Jones U.S. Oil Services Trust (ASE: OIH).

"Therefore, sector leadership remains positive – and this should continue to inspire further gains in the major market indices as long as this trend remains in effect. Meanwhile, market breadth has recovered over the past few trading sessions.

"The worst is over," options traders David Nasser and Larry McMillan forecast last week in a joint report for MarketWatch Options Trader.

In support of their bullishness, they noted, "Recent action constituted a retest of the March 5 lows. At this point in time, it appears to have been a successful retest. While all of our technical indicators aren't yet in agreement, it would seem that the bears have run out of steam for now.'

The technicians add, "The equity-only put-call ratios have basically skyrocketed since the bullish trend first broke, back on Feb. 27. They have now reached levels higher than those seen at last summer's correction lows. These are some of the most consistently high put-call readings in history. Eventually, it should lead to strong buy signals -- and probably fairly soon."