Opinion: The S&P 500 is so close to breaking that crucial level and challenging the bear market trendline

The S&P 500 may be on the verge of securing two major bull SPXs,
-0.08%
milestones.

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

Second, the VIX trend is changing, which would signify a medium-term buy signal. More on that later.

Laurent McMillan

As the stock market has advanced, some indicators become 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) +4σ. This will eventually set up a “classic” mBB sell signal when SPX eventually closes below the +3σ band.

However, we would not trade this signal. We will wait to see if there is confirmation of this “classic” selloff, which would signify a McMillan Volatility Band (MVB) sell signal. That we would swap, but that’s not necessarily guaranteed.

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

The stock-only buy and sell ratios continue to fall, and thus both ratios remain bullish in their outlook for stocks. The weighted ratio has fallen faster and is already in the lower half of its chart. As long as these ratios go down, it’s bullish for the stock market.

Laurent McMillan

Laurent McMillan

The width has been strong on this rally, and both width oscillators remain on buy signals – rather deep in overbought territory. This overbought condition is a positive thing in the early stages of a new bullish phase in the stock market (and I believe we are still in the early stages of this rally). The width oscillators are at such high numbers that they could sustain a few days of negative width and still stay on those buy signals. Eventually, a sell signal will occur from the width, but it’s not immediately at hand.

The only remaining sell signal is the comparison of new 52 week highs and lows. New highs on the NYSE are still few (25 on Wednesday, and last week’s high was 45 one day). Thus, this indicator remains negative.

VIXVIX,
-2.32%
continued to slowly decline as the market rose. Even so, a major shift in the medium-term trend of the VIX appears to be within reach.

VIX broke below its 200-day moving average last week, when it fell below 24. Now, the 20-day MA of VIX is crossing below the 200-day MA. If he maintains this cross below, it would mean that the trend of the VIX is down (ie the VIX and its 20-day MA are below the 200-day MA).

A downward trending 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.

Laurent McMillan

The construct of VX00 volatility derivatives,
-5.81%
also improved. It had been slightly bullish for stocks, but is now taking a fully bullish stance. The futures structure of VIX futures contracts is upward sloping (it’s a bit flat at the end). In addition, the term structure of the CBOE volatility indices is positive.

In summary, a bearish “core” stance will no longer be warranted if SPX closes above 4170 for two consecutive days, and that could happen very quickly. In the meantime, we continue to hold our various long positions which were bought in line with our indicators. Eventually we will start to see sell signals, but they haven’t appeared yet.

New Recommendation: VIX Trend Buy Signal

As noted in the market commentary above, VIX is about to receive an important medium-term buy signal for stocks in that it begins to decline. We want to exchange this signal:

IF VIX closes below 24:00 today,

THEN buy 1 SPY Seven (16e) call for parity

And sell 1 SPY Seven (16e) call with a strike price 15 points higher.

If this position is established, we will maintain it until the $VIX returns above its 200-day moving average. Specifically, stop if VIX closes above 24.60 for two consecutive days.

New Recommendation: SPX Breakout Buy Signal

Also, as noted in the market comment above, SPX SPY,
-0.07%
is about to experience a major bullish breakout.

IF SPX closes above 4170 for two consecutive days,

THEN buy 1 SPY Seven (16e) call for parity

And sell 1 SPY Seven (16e) call with a strike price 15 points higher.

In the event of a buy, we would stop on a close SPX below 4070.

New Recommendation: VanEck Oil Services ETF

This recommendation is based solely on the put-call ratio buy signal for the VanEck Oil Services ETF OIH,
-5.31%.
From the attached chart, it can be seen that previous buy signals over the past year have been timely. As these are high priced options, we will use a bull spread call.

Buy 2 OIH Seven (16e) 230 calls

And sell 2 OIH Seven (16e) 250 calls

In tune with the market.

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

We will hold this position as long as the weighted The put-call ratio for OIH remains on a buy signal.

Laurent McMillan

Follow-up measures

All stops are mental closing stops unless otherwise stated.

We will implement a “standard” rolling procedure for our SPY spreads: in any bullish or bearish vertical spread, if the underlying hits the short strike, then roll the entire spread. It would be rolling at the top in the case of a call bull spread or roll down in the case of a bear put spread. Stay in the same exhale and keep the same distance between strikes unless instructed otherwise.

Long 6 AMLX August (19e) Calls 22.5: Raise the closing stop at 21.50.

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

Long calls 10 CRNT (August 19) 2.5: Aviat AVNW networks,
+1.31%
announced that it has submitted a revised non-binding proposal to acquire all of the outstanding shares of Ceragon Networks CRNT,
-2.54%
for $3.08 per share ($2.80 in cash per share, plus $0.28 in equity consideration). Keep holding on for now.

Long 2 COWN August (19e) 30 calls: The COWN company,
+0.16%
received a takeover bid for $39 in cash. Sell ​​these calls at a price of 8.20 or more; leave the rest for risk arbs.

Long 2 AAPL September (16e) 160 calls: This position was removed when Apple AAPL,
-0.19%
traded at 160. We will hold them as long as the put-call ratio buy signal remains in effect.

Long 2 SPY August (19e) 411 calls and short 2 SPY Aug (19e) 426 calls: These spreads were bought on July 21, when several indicators generated buy signals. Then they were rolled up when SPY traded at 411 on July 29. We will stop on this trade as follows: sell half if the width oscillators come back to sell signals and sell half if the equity put-call only ratios come back to sell signals. Both remain on buy signals for now (see market commentary above).

Long 1 SPY Seven (16e) 402 put and short 1 SPY Seven (16e) 377 set: Stop out of this position if SPX closes above 4170.

Long 3 MRO Oct (21st) 24 calls: we will maintain this position as long as the put-call ratio for Marathon Oil MRO,
-6.20%
remains on a buy signal.

Send your questions to: lmcmillan@optionstrategist.com.

Lawrence G. McMillan is President of McMillan Analysis, a registered commodity trading and investment adviser. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and fund manager and is the author of the bestselling 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 and completeness are not guaranteed. Officers or directors of McMillan Analysis Corporation, or accounts managed by such persons, may hold positions in the securities recommended in the advisory.

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