Opinion: As bullish stock markets continue to push, watch these technical levels


The S&P 500 Index has seen sales this month after hitting a new all-time high on September 2. The decline has been modest and the bulls are trying to keep it that way. Major support at 4370 is still in place and has not been tested since mid-August.

This week, the S&P SPX,
bottomed out near 4435 which could be support although it’s far too early to tell. If SPX drops below 4435, however, we would expect the 4370 support level to be retested.

The decline has been slow, so realized volatility has not increased much. The historical 20-day volatility of the S&P simply fell from 8% to 9%. Technically, a move above 10% would be a sell signal. However, it is the norm that when the index begins to fall, realized volatility can explode upward. This is certainly not the case now.

Related to this, the McMillan Volatility Band (MVB) sell signal from early July is still in effect, as SPX has not touched any of the +/- 4σ “modified Bollinger bands” since that signal. has been generated.

Laurent McMillan

Equity-only sell ratios are mixed in their positions at the moment. The Standard The ratio peaked in early August (a buy signal) and has been falling steadily since. It remains on its buy signal, despite selling in the broad stock market so far in September.

Meanwhile, the weighted ratio has been in a different place. This week alone, it hit its highest levels since June, surpassing modest peaks in August and September. Thus, it is on a sell signal and will continue to be so as long as it is bullish.

These two ratios won’t stay opposed for long, but they are now.

Laurent McMillan

Laurent McMillan

Market breadth (advances minus bears) has been a problem for bulls for some time, but they have generally been able to ignore it as SPX continues to climb.

Our width oscillators generated sell signals on September 7th. This caused the “stocks-only” width oscillator to move into deeply oversold territory when the market subsequently declined. However, these oscillators are now starting to recover. If there is a positive amplitude on Thursday, a buy signal would emerge.

Meanwhile, cumulative width indicators have shown little to no improvement, so the negative divergence in place since June 11 continues. This is a warning sign for the market as a whole, but it is not a sell signal per se.

The new 52 week highs have collapsed, but they continue to hold a slight advantage over the new 52 week lows in NYSE terms. However, in terms of both “stocks only” and NASDAQ data, new lows have taken a small lead. Either way, none of them are big enough to generate a new sell signal at this point.

The implied volatility indicators have been quite bullish, despite the market decline. For example, VIX VIX,
+ 4.07%
did not return to a “tingle” mode (an increase of 3.00 points or more over a period of one, two or three days, using closing prices). It’s a little unusual. This means, for example, that the August 19 VIX “peak” buy signal is still in place. The system we have built to trade these peak spikes calls for a signal to “expire” after 22 trading days, and that date is next Tuesday.

Meanwhile, the VIX trend remains bearish which is bullish for stocks. That is, both VIX and its 20-day moving average are below the 200-day MA.

Laurent McMillan

The construction of volatility derivatives also remains bullish for the stock market. October VIX futures are now the first month, as September VIX futures expired last Wednesday.

The relationship we want to watch is the one between the VIX October and November futures. As long as October is trading at a lower price than November, everything is bullish. But a reversal in their prices would be an immediate sell signal. As it stands, however, futures structures are on an upward slope, and the bullish outlook for the stock market persists from these indicators.

In summary, we remain vigilant for a major support violation by SPX, but it has not happened. The SPX chart is always trending up and VIX is trending down. We are therefore keeping the “basic” bullish position and will trade sell signals around it as they are confirmed.

New recommendation: two conditional SPX sell signals

Based on the above, we are going to set some parameters regarding taking a bearish position if SPX support breaks:

IF SPX trades below 4370 and stays there for an hour,

THEN buy 1 SPY Oct (15e) put during

And sell 1 SPY Oct (15e) put with a striking price 25 points lower.


IF SPX closes below 4370,

THEN buy another bear spread:

Buy 1 (more) SPY Oct (15e) put during

And sell 1 (more) SPY Oct (15e) put with a striking price 25 points lower.

Note that it is possible for the second condition (close below 4370) to occur without the first condition being met (if $ SPX goes below 4370 at the end of the trading day). If so, buy two of these spreads at the close.

Finally, if those spreads are established, stop all those bearish spreads on an SPX close above 4430.

In addition to the above recommendation, which has been in place for a while now, we are adding this one:

IF SPX closes below 4444 and VIX closes above 22.38,

So buy 1 SPY Oct (15e) put and sell during October 1 SPY (15e) put with a striking price 25 points lower.

If this trade has entered, stop on the next VIX “peak” buy signal.

New recommendation: Citrix Systems

Citrix CTXS Systems,
had a significant volume of options on September 15, as rumors spread that the company was considering strategic alternatives.

Buy 3 CTXS October (22sd) 112 calls

At a price of 4.00 or less.

CTXS: October 111.89 (22sd) 112 calls: 2.40 offer, free at 6.00

If buying, set a close stop at 107.

Laurent McMillan

Follow-up actions

All stops are mental shutdown stops, unless otherwise noted.

Long 1 expiring RAPT Seven (17e) 30 call: Drive towards the October (15e) 35 calls, as they continue to trade with high implied volatility.

Long 2 expiring HOLX Seven (17e) 75 calls: The stock is just above our stop and appears to be deteriorating. Sell ​​those calls now – close a profitable deal – and don’t replace them.

Long 1 SPY Oct (15e) 440 put and shorts 1 oct (15e) 415 put: This spread was bought in accordance with put-call ratio sell signals only on equities. These put-call ratio signals are now mixed, but with the weighted ratio remaining on a sell, we continue to maintain this spread.

5 long STAR expiring September 17e) 25 calls: Drive towards the October (15e) 25 calls and raise the stopper to 25.20.

Long 5 expiring VNE Sept (17e) 38 calls: The outbid we had anticipated in Veoneer VNE,
has not evolved. Magna International MGA,
had bid $ 31.25, and Qualcomm QCOM,
had bid 37. On Monday, Qualcomm confirmed this offer (making it a binding offer) but did not increase it. There was no word from Magna. So let those calls time out and don’t replace them.

Long 2 SPY Seven (24e) 453 calls: A buy spread was bought in accordance with the VIX ‘peak’ buy signal of August 19 and has been raised. Stop if VIX returns to “peak mode”, that is, if it increases by 3.00 points over a period of one, two or three days, using the closing prices. If it reverts to doping mode, another buy signal will go into place as soon as it closes at least 3.00 points from its highest point reached while in “doping mode”.

Long 3 LDOS Oct (15e) 100 calls: These calls were bought online with a signal to buy a weighted put-call ratio for Leidos Holdings LDOS,
which is still in effect. Continue to hold as long as the put-call ratio buy signal is in place.

Long 3 PCAR Oct (15e) 82.5 calls: These calls were bought online with a buy signal for a weighted put-call ratio for Paccar PCAR,
which is still in effect. Continue to hold as long as the put-call ratio buy signal is in place.

Long 2 IWM Oct (15e) 224 puts and short 2 IWM Oct (15e) 209 puts: These were bought in accordance with the width oscillator sell signals. These sell signals are still in effect, but barely. If the NYSE width is positive on Thursday, get out of that gap. Otherwise, wait for an update next week.

Long 2 ETN October (15e) 165 stakes: These puts were bought online with a sell signal for the weighted put-call ratio for Eaton ETN,
which is still in effect. Continue to hold as long as the put-call ratio sell signal is in place.

Send your questions to: lmcmillan@optionstrategist.com.

Lawrence G. McMillan is President of McMillan Analysis, a Certified Commodity Investment and Trading Advisor. McMillan may hold positions in the securities recommended in this report, both personally and in accounts receivable. 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 advisor and with the CFTC as a commodity trading advisor. The information in this bulletin has been carefully compiled from sources believed to be reliable, but the 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 notice.


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