The stock market, as measured by the S&P 500 index SPX, hit a new all-time high. This was accompanied by buy signals from nearly every indicator we follow, including those that measure the “inside” of the stock market.
A breakout should be confirmed if the S&P 500 moves above 5,260 and a support area should form between 5,200 and 5,260. There are other support areas below that, but if this breakout fails, a close below 5,070 would be very negative. That seems unlikely in the short term.
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The latest Macmillan Volatility Band (MVB) buy signal was successful and reached its target as the S&P 500 closed above the +4σ “Modified Bollinger Band” (mBB). This will start a new process. May This results in an MVB sell signal, but the process takes some time to execute. First, the S&P 500 has to close below the +3σ band, which generates a “classic” sell signal (we do not trade these bands). In that case, the index would have to fall further to confirm the MVB sell signal.
The stock-only put-call ratio has finally confirmed the buy signal for stocks. The Standard Ratio had been moved to a buy signal by him a little more than a week ago, but the Weighted Ratio did not reach “official” bullish status from the computer analysis program until just a few days ago. As long as these ratios continue to decline, they will remain bullish for the stock market.
The breadth of the market is very strong. Both breadth oscillators are in buy signals and deep in overbought territory. It doesn’t matter if these oscillators are overbought as the S&P 500 begins a new rally. Perhaps we can withstand two or even three days of negative swings and still maintain a buy signal.
Cumulative volume breadth (CVB) continues to set new highs, confirming new highs for the S&P 500. This indicator gave a buy signal several weeks ago, and the target is a new high for the index. Since it has been filled, the position bought along that particular buy signal should be closed.
New highs continue to outnumber new lows on the New York Stock Exchange. In fact, the highest value has been above 100 for nine consecutive days. That’s a pretty long streak. Either way, this indicator remains bullish on the stock. If the New York Stock Exchange’s new low exceeds the new high for two consecutive days, the buy signal will be suspended.
As this rally progressed, the VIX VIX continued to fall. The “spike peak” buy signal (for stocks) was registered on April 22nd and is still valid. Due to the trading system’s rules designed around spike peaks on the VIX chart, this signal will persist for 22 trading days, or even a week or so. Additionally, as of yesterday’s close, a new trend in the VIX buy signal (stock) was recorded. This is because the 20-day moving average of VIX fell below the 200-day moving average. His attached VIX chart has a circle on it. I’m not very happy to get into a VIX trend signal when VIX is already very low, but the signal is valid.
The composition of volatility derivatives also remains bullish for equities. The term structure of the CBOE Volatility Index and VIX futures continues to trend upward. Additionally, all VIX futures trade at a healthy premium to the VIX.
To summarize, we are rolling out profitable bullish positions upwards (or, in some cases, exiting positions with CVBs, MVBs, etc.). The current outlook is bullish, but we intend to trade any confirmed signals.
New Recommendation: Cognizant Technology Solutions (CTSH)
Now we have a new weighted put-call ratio buy signal, so we will act on it.
3 Purchase CTSH CTSH (July 19th) 70 calls according to the market price.
New recommendation: CSX Inc. (CSX)
CSX I recently had a successful sell signal (and put purchase) on CSX. This signal looks just as attractive as the previous sell signal.
Conditional call buy on CSX Inc.: If CSX closes above $34.60, Then bought 5 CSX (August 16) 35 calls according to the market
New Recommendation: Walgreens Boots Alliance (WBA)
This is a long-term potential buy signal from Walgreens Boots Alliance WBA. We will keep this advisory public, but we do not intend to continue reprinting the reasoning behind the trade.
If WBA closes above $22.50, Then bought 4 WBA (June 21st) 22.5 call according to the market.
Follow-up actions:
We use a “standard” rolling procedure for SPY spreads. In a vertical bullish or bearish spread, if the underlying asset hits a short strike, you roll the entire spread. This will be a roll up for a call bull spread and a roll down for a bear put spread. Keep the same expiry date and the same distance between blows unless instructed otherwise.
Long 3 Expiry TLT (May 17) 90 Put: The put-call ratio here has turned into a buy signal. If possible, sell TLT TLT puts. Otherwise, it will expire and become worthless.
Long 4 Expired RSI To RSI role (June 21st) 7.5 calls. Stop out at closing price below $7.50.
These puts were terminated on May 10th when MCD MCD closed above $271.
long 2 spy The put-call ratio for SPY stock only has switched to a buy signal, so sell this spread now to exit.
Long 3 Expired AEYE Roll to AEYER June (21st) 20 calls and raise your stop to 16.50.
It was purchased in line with the VIX “spike peak” buy signal on April 22nd. The 500-517 spread on May 24th rolled up to a 517-534 spread (on May 24th) when SPY traded at 515.
length This is a buy signal for MVB. His original 500-524 rolled up on his May 15th and SPY traded at 524. At the money call.
long 10 poets poets (June 21st) 2 calls: The subsequent closing price stop remains at $1.85.
Long 3 USO USO (June 21) 76 said: Hold these puts as long as the put-call ratio is in a sell signal.
Buy on buy signals of new highs vs. new lows. If the new NYSE low price exceeds the NYSE new high price for two consecutive days, the trade will be aborted.
Long 1 SPY (May 31) 518 call: This was bought in line with the cumulative volume breadth (CVB) buy signal. The goal was for SPX to hit a new all-time high, and that was achieved. So sell this call now and take profit.
Long 2 LW LW (June 21) 82.5 Call: Hold these calls as long as LW maintains a weighted put-call ratio buy signal.
Send questions to lmcmillan@optionstrategist.com.
Lawrence G. McMillan is President of McMillan Analysis, a registered investment and commodity trading advisor. Mr. McMillan may hold positions in securities recommended in this report, both for personal and client accounts. He is an experienced trader and wealth manager and author of Options As A Strategic Investment.
©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 newsletter has been carefully compiled from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Macmillan Analysis Corporation officers and directors, or accounts managed by such persons, may have positions in securities recommended in the advisory.
