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

Opinion: The S&P 500 is very close to breaking this important level and challenging the bear market trend line
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The S&P 500 may be about to deliver two major gains
SPX,
-0.30%

stages

First, the S&P rallied to key resistance at 4170 starting in mid-June. A two-day close above this level would be quite bullish and would set the stage for a bearish trendline challenge. as well as the difficulty of the 200-day moving average – both are currently near 300.

Second, the trend of the VIX is changing, which means an intermediate-term buy signal. More on that later.

Lawrence McMillan

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

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

However, we would not trade this signal. We will wait to see if there is confirmation of a “classic” sell, meaning a sell signal from the McMillan Volatility Group (MVB). We will trade, but this is not necessarily guaranteed.

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

Only equity sales ratios continue to decline, and thus both ratios remain bullish on their outlook for stocks. The weighted ratio is decreasing more rapidly and is already in the lower half of the graph. As long as these ratios are declining, it is bullish for the stock market.

Lawrence McMillan

Lawrence McMillan

Breadth has been strong in this rally and both breadth oscillators remain in buy signals – quite deep in overbought territory. This overbought situation is positive in the early stages of a new uptrend in the stock market (and I believe we are still in the early stages of this rally). Breadth oscillators are so high that they can withstand several days of negative breadth and still remain in these buy signals. Eventually, a sell signal will occur from the breadth, but it’s not immediately in your hands.

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

VIX
VIX,
+1.00%

continued to decline slowly as the market rose. However, a major change in the VIX’s intermediate-term trend is imminent.

The VIX broke below its 200-day moving average last week when it fell below 24. Now the 20-day MA of the VIX is crossing below the 200-day MA. If it holds this cross below, it means the VIX is trending down (ie, both the VIX and its 20-day MA are below the 200-day MA).

A down-trending 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

Constructing volatility derivatives
VX00,
-5.81%

you have also improved. It was a modest rally for the stock, but it is now fully bullish. The term structure of VIX futures is upward sloping (slightly flat at the far end). Also, the term structure of the CBOE Volatility Indices is positive.

In summary, if the SPX closes above 4170 for two days in a row, the “core” bearish position will no longer be justified, and that could happen very quickly. In the meantime, we continue to hold various long positions purchased in accordance with our indicators. Eventually, we will start to see sell signals, but they haven’t come out yet.

New recommendation: VIX trend buy signal

As mentioned in the Market Commentary above, the VIX is on the verge of a key intermediate-term buy signal for stocks as it begins to trend lower. We want to trade this signal:

IF VIX Closed below 24.00 today,

THEN 1 SPY September (16c) call with money

And 1 SPY September (16c) Call 15 points higher.

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

New recommendation: SPX breakout buy signal

As mentioned in the Market Commentary above, the SPX
spy,
-0.32%

is on the verge of a big rise.

IF SPX Closed above 4170 for two consecutive days,

THEN 1 SPY September (16c) call with money

And 1 SPY September (16c) Call 15 points higher.

If it was bought, we would stop ourselves at an SPX below 4070.

New recommendation: VanEck Oil Services ETF

This recommendation is based solely on the VanEck Oil Services ETF’s buy signal
OIH,
-3.00%
.
From the accompanying chart, it can be seen that previous buy signals over the past year were well timed. Since these are high priced options, we will use the call bull spread.

2 OIH September (16c) 230 corn

And 2 OIH September (16c) 250 corn

According to the market.

OIH: 231.85 Sep (16c) 230-250 call bull spread: 8.30 bid, bid at 9.30

As long as we will maintain this position heavy The put-call ratio for OIH remains a buy signal.

Lawrence McMillan

Next move

All stops are mental shutdown stops unless otherwise noted.

We will implement the “standard” rollover procedure for our SPY spreads: in any vertical bull or bear spread, if the underlying short strikes, then roll the entire spread. That would be the roll up In case of call bull spread or roll down spread in the case of a bear. Stay for the same duration and, unless otherwise indicated, keep the same distance between strokes.

Long 6 AMLX August (19c) 22.5 calls: Raise the closing stop to 21.50.

Long 1 SPY Aug (19c) 398 calls and short 1 SPY Aug (19c) 418 calls: The SPY call bull spread was first bought and spread according to the McMillan Volatility Band (MVB) buy signal. It was most recently rallied on July 21 when the SPY traded at 398. His target is for the SPX to touch the +4σ Band and it has happened, so sell this spread now.

Long 10 CRNT (August 19) 2.5 calls: Networks coming soon
AVNW,
-0.10%

Ceragon Networks has announced that it has submitted a revised non-binding offer to acquire all of its outstanding shares.
CRNT,
-3.62%

$3.08 per share ($2.80 per share in cash, plus $0.28 in equity consideration). For now, keep holding on.

Long 2 COWN August (19c) 30 corn: Company
COWN,
+0.16%

Received a purchase offer for $39 cash. Sell ​​these calls at 8.20 or higher; leave the rest to risk trees.

Long 2 AAPL September (16c) 160 corn: This position passed when Apple
AAPL,
-0.78%

It is trading at 160. We will hold these for as long as the put-call ratio buy signal remains valid.

Long 2 SPY August (19c) 411 call and short 2 SPY Aug (19c) 426 calls: These spreads were purchased on July 21, when several indicators generated buy signals. They then rolled over when SPY traded at 411 on July 29th. We will stop ourselves from this trade in this way: if the breadth oscillators turn back to sell signals, we sell half, and only if the stockists sell, we sell half. odds are pulled back to sell signals. Both currently remain in buy signals (see Market Commentary above).

Long 1 SPY September (16c) 402 put and short 1 SPY September (16c) put 377: If SPX closes above 4170, exit this position.

Long 3 MRO October (21St) 24 corn: We will hold this position as long as there is a sell ratio for Marathon Oil
MRO,
-5.24%

remains in a buy signal.

Send questions to: lmcmillan@optionstrategist.com.

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 on client accounts. He is an experienced trader and money manager and author of the bestselling book “Options as a Strategic Investment“.

Disclaimer: ©McMillan Analysis Corporation is registered as an investment adviser with the SEC and as a commodity trading adviser with the CFTC. The information in this bulletin 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 have positions in the securities recommended in the advisory.

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