Opinion: The S&P 500 is near breaking by this important degree and difficult the bearish pattern line

The S&P 500 could secure two big gains SPX,
-0.04%
stages.

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

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

Lawrence McMillan

As the stock market advances, certain indicators are bought. Eventually they will generate sell signals and we will trade them as soon as they occur.

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

However, we do not trade this signal. We’ll wait to see if that “classic” sell is confirmed, which would mean a McMillan Volatility Band (MVB) sell signal. That we trade, but this is not necessarily guaranteed.

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

Only equity sales and redemptions continue to decline, so the stock outlook for both indicators remains bullish. The weighted ratio has fallen faster and is already in the lower half of its chart. As long as these indicators are falling, it’s bullish for the stock market.

Lawrence McMillan

Lawrence McMillan

This rally was big, and both breadth oscillators remain in buy signals, quite deep in overbought territory. That overbought condition is a positive 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 number of breadth oscillators is so high that they can withstand several days of negative breadth and still stay on those buy signals. Eventually, a sell signal will occur from the breadth, but not immediately.

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

VIX VIX,
+0.64%
continued to slowly decline as the market rose. Nevertheless, a change in the medium-term trend of the VIX appears to be on the way.

Last week, the VIX fell below the 200-day moving average when it fell below 24. Now the VIX 20-day MA is crossing below the 200-day MA. If this cross is lower, it would indicate that the VIX is trending down (ie, the VIX and its 20-day MA are below the 200-day MA).

A falling VIX is a medium-term buy signal for the stock market. This is the first time since last November that the VIX has trended downward.

Lawrence McMillan

VX00 construction of volatility derivatives,
-5.81%
also improved. The stock was up modestly, but is now fully bullish. The term structure of VIX futures is bullish (it is somewhat flat at the far end). Also, the term structure of the CBOE Volatility Indices is positive.

In summary, the “core” bearish position will no longer be justified if the SPX closes above 4170 for two consecutive days, and that could happen very quickly. In the meantime, we continue to hold a variety of long positions that were bought based on our indicators. Eventually we will start to see sell signals, but they haven’t shown up yet.

New Recommendation: VIX Trending Buy Signal

As noted in the market commentary above, the VIX is on the verge of a major intermediate-term equity buy signal as it begins to decline. We want to trade the following signal:

IF VIX closes today until midnight

Then buy 1 SPY on September 16thth) money call

And sell 1 SPY on September 16thth) call with an impressive 15 point premium.

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

New recommendation: SPX breakout buy signal

Also, as mentioned in the market commentary above, SPX SPY,
-0.04%
is on the verge of a major upswing.

IF SPX closes above 4170 two days in a row,

Then buy 1 SPY on September 16thth) money call

And sell 1 SPY on September 16thth) call with an impressive 15 point premium.

If we were to buy, we would not buy the SPX below 4070.

New recommendation: VanEck Oil Services ETF

This recommendation is based solely on the buy signal of the VanEck Oil Services ETF OIH buy-to-call ratio,
-3.00%.
The accompanying chart shows that previous buy signals over the past year have been correctly predicted. Since these are expensive options, we will use the call bull spread.

Buy 2 OIH September 16thth) 230 calls

And sell 2 OIH on September 16thth) 250 calls

According to the market.

OIH: 231.85 on 16 Septemberth) 230-250 call bull spread: 8.30 offer, 9.30 offer

We will hold these positions until weighted The OIH call-to-call ratio remains in a buy signal.

Lawrence McMillan

Further actions

All stops are mental shutdown stops unless otherwise noted.

We’re going to implement the “standard” rolling procedure for our SPY application: in any vertical bull or bear contaminated area, if the bottom hits a short strike, then roll the entire spread. That would be a scroll up in the case of a call bull spread or roll down in the case of a bear deposit. Stick to the same expiration date and keep the same distance between hits unless otherwise specified.

Long 6 AMLX Aug 19th) 22.5 calls: Raise the closing stop to 21.50.

Long 1 SPY Aug 19th) Call 398 and short 1 SPY on Aug 19th) 418 call: The SPY call bull spread was originally bought on the McMillan Volatility Band (MVB) buy signal, and it was put into action. It was recently twisted when on July 21 SPY was trading at 398. His goal is for SPX to touch the +4σ band and it did, so sell this spread now.

Long 10 CRNT Aug (19) 2.5 calls: Aviat Networks AVNW,
+1.09%
announced that it has made a revised non-binding offer to acquire all of the outstanding shares of Ceragon Networks CRNT,
-3.08%
for $3.08 per share ($2.80 in cash per share plus a $0.28 equity consideration). Hold on for now.

Long 2 COWN August 19th) 30 calls: Company COWN,
+0.21%
received a takeover offer for $39 in cash. Sell ​​these calls at 8.20 or higher; leave the rest to the risk takers.

Long 2 AAPL Sep 16th) 160 calls: This position was wrapped up when Apple AAPL,
-0.51%
trading at 160. We will hold them as long as the buy to call ratio signal is valid.

Long 2 SPY Aug 19th) calls 411 and short 2 SPY on Aug 19th) 426 calls: These spreads were bought on July 21 when multiple indicators were generating buy signals. Then they were wrapped up when on July 29 SPY was trading at 411. We will stop this trade as follows: sell half if the breadth oscillators reverse to sell signals, and sell half if the stock just gets passed. coefficients return to sell signals. Currently, both remain in buy signals (see market commentary above).

Long 1 SPY Sep 16th) 402 put and short 1 SPY Sep 16th) 377 put: Stop from this position if SPX closes above 4170.

Long MRO on October 3rd. (21stSt) 24 calls: we will maintain this position as long as Marathon Oil MRO’s put-to-call ratio is maintained,
-4.11%
remains on a buy signal.

Send questions to [email protected]

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