Opinion: The S&P 500 is very close to crossing this crucial level and challenging the bear market trend line

The S&P 500 Index may be about to lock in two major SPX bulls,
-0.08%
milestones.

First, the S&P has rallied from that mid-June low to major resistance at 4170. A two-day close above that level would be quite bullish and set the stage for a challenge to the downtrend line that defines this market. bearish as well as a challenge from the 200 day moving average, both of which are currently near 300.

Second, the trend of the VIX is changing, which would be a buy signal in the medium term. More on that later.

Lawrence Mc Millan

As the stock market progresses, certain indicators are becoming overbought. They will eventually generate sell signals and we will trade them as they occur.

One of the first is that SPX has now closed above its “Modified Bollinger Band” (mBB) of +4σ. This will eventually set up a “classic” mBB sell signal when SPX finally closes below the +3σ band.

However, we would not change that signal. We will wait to see if there is confirmation of that “classic” sell, which would mean a McMillan Volatility Band (MVB) sell signal. That we would exchange, but it is not necessarily guaranteed.

In any case, neither the “classic” nor the MVB sell signal has yet been produced.

Equity-only put-call indices continue to fall and therefore both indices remain bullish in their outlook for equities. The weighted ratio has been falling faster and is already in the lower half of its chart. As long as these ratios are declining, that’s bullish for the stock market.

Lawrence Mc Millan

Lawrence Mc Millan

Amplitude has been strong on this rally, and both amplitude oscillators remain in buy signals, quite deep into overbought territory. That overbought condition is a positive thing in the early stages of a new bullish phase in the stock market (and I think we are still in the early stages of this rally). The amplitude oscillators are at such high numbers that they could withstand a couple of days of negative amplitude and stay in those buy signals. Eventually a breadth sell signal will occur, but that is not immediately available.

The only remaining sell signal is the comparison of the new 52-week highs and lows. The new highs on the New York Stock Exchange are still small in number (25 on Wednesday, and last week’s peak was 45 a day). Therefore, this indicator remains negative.

vix vix,
+0.27%
it has continued to slowly fall as the market has risen. Still, a major change in the medium-term trend of the VIX appears to be in the offing.

VIX crossed below its 200-day moving average last week, when it fell below 24. Now, the VIX 20-day moving average crosses below the 200-day moving average. If you hold this cross below, it would mean that the VIX is trending down (ie both the VIX and its 20-day moving average are below the 200-day moving average).

A downtrending VIX is a medium-term buy signal for the stock market. This is the first time since last November that the VIX trend has been down.

Lawrence Mc Millan

Building Volatility Derivatives VX00,
-5.81%
has improved too. He had been moderately bullish on the stock, but is now taking a fully bullish stance. The VIX futures term structure is upward sloping (it’s a bit flat at the other end). Also, the term structure of the CBOE Volatility Indices is positive.

In short, a “core” bearish position will no longer be warranted if SPX closes above 4170 for two days in a row, and that could happen very quickly. In the meantime, we continue to hold our various long positions that were bought in line with our indicators. Eventually, we will start to see sell signals, but they have not surfaced yet.

New Recommendation: VIX Trend Buy Signal

As noted in the Market Commentary above, VIX is on the verge of a major medium-term buy signal for the stock as it is starting to trend down. We want to exchange that signal:

YES VIX close below 24.00 today,

THEN buy 1 SPY for September (16the) at-the-money call

And sell 1 SPY of September (16the) calls with an impact price 15 points higher.

If this position is established, we will hold it as long as $VIX does not cross back above its 200-day moving average. Specifically, stop if VIX closes above 24.60 for two days in a row.

New Recommendation: SPX Breakout Buy Signal

Also as noted in the market commentary above, SPX SPY,
-0.08%
is on the verge of a major bullish breakout.

YES SPX close above 4170 for two consecutive days,

THEN buy 1 SPY for September (16the) at-the-money call

And sell 1 SPY of September (16the) calls with an impact price 15 points higher.

If bought, we would stop at a SPX close below 4070.

New Recommendation: VanEck Oil Services ETF

This recommendation is based solely on the put-call buy signal for the VanEck Oil Services OIH ETF,
-2.90%.
In the attached chart, you can see that previous buy signals over the past year have been timely. Since these are high-priced options, we are going to use a bullish call spread.

Buy 2 OIH September (16the) 230 calls

And sell 2 OIH Sept (16the) 250 calls

In line with the market.

OIH: 231.85 Sept (16the) 230-250 call bull spread: bid at 8.30, offered at 9.30

We will maintain this position while the weighted The put-call relationship for OIH remains in a buy signal.

Lawrence Mc Millan

follow up action

All stops are mental shutdown stops unless otherwise noted.

We are going to implement a “standard” rolling procedure for our SPY spreads: in any vertical up or down spread, if the underlying hits the short strike price, then roll the entire spread. that would be roll up in the case of a bull spread or roll call down in the case of a bear put spread. Stay on the same expiration and keep the same distance between hits unless otherwise noted.

Largo 6 AMLX Aug (19the) 22.5 calls: Raise the closing stop at 21.50.

Long 1 SPY Aug (19the) 398 call and short 1 SPY Aug (19the) 418 call: A bullish SPY call spread was originally bought in line with the McMillan Volatility Band (MVB) buy signal, and has been rolled. It was recently summed up when SPY traded at 398 on July 21. Your goal is for SPX to touch the +4σ band, and that has happened, so sell this spread now.

Largo 10 CRNT Aug (19) 2.5 calls: aviat Networks Avnw,
+1.09%
announced that it had submitted a non-binding revised proposal to acquire all of the outstanding shares of Ceragon Networks CRNT,
-3.26%
for $3.08 per share ($2.80 cash per share, plus $0.28 in equity consideration). Keep holding on for now.

Length 2 COWN Aug (19the) 30 calls: COWN company,
+0.22%
received a takeover offer for $39 cash. Sell ​​these calls at a price of 8.20 or more; leave the rest for the risk arbs.

Long 2 AAPL Sep (16the) 160 calls: This position was accumulated when Apple AAPL,
-0.54%
traded at 160. We will hold them as long as the put-call ratio buy signal remains in effect.

Long 2 SPY Aug (19the) 411 calls and shorts 2 SPY Aug (19the) 426 calls: These spreads were bought on July 21, when several indicators generated buy signals. They were then summarized when SPY traded at 411 on July 29. We will stop out of this trade as follows: sell half if amplitude oscillators reverse to sell signals and sell half if equity-only put-call indices pull back to show sell signals. Both remain in buy signals at the moment (see market comment above).

Long 1 SPY Sept (16the) 402 put and short 1 SPY Sept (16the) 377 put: Exit this position if SPX closes above 4170.

Long 3 MRO Oct (21St.) 24 calls: we will hold this position as long as the put-call ratio for Marathon Oil MRO,
-4.06%
remains in a buy signal.

Send your questions to: lcmmillan@optionstrategist.com.

Lawrence G. McMillan is president of McMillan Analysis, a registered commodity trading and investment advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of the best selling book “Options as a strategic investment“.

Disclaimer: ©McMillan Analysis Corporation is registered with the SEC as an investment adviser and with the CFTC as a commodity trading adviser. The information in this newsletter has been carefully compiled from sources believed to be reliable, but its accuracy or completeness is not guaranteed. Officers or directors of McMillan Analysis Corporation, or accounts managed by such persons, may hold positions in the securities recommended in the notice.

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