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

The S&P 500 Index may be in the process of securing two major bullish SPXs,
-0.12%
milestones.

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

Secondly, the trend of VIX is changing, which would mean a medium-term buy signal. We will talk about it later.

Lawrence Mc Millan

As the stock market advances, some indicators are becoming 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 create a “classic” mBB sell signal when SPX eventually closes below the + 3σ band again.

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

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

Stock-only put-call ratios continue to decline, and therefore both ratios remain bullish in their outlook for stocks. The weighted ratio has decreased faster and is already in the lower half of the graph. As long as these ratios are down, it is bullish for the stock market.

Lawrence Mc Millan

Lawrence Mc Millan

Amplitude has been strong in this rally and both amplitude oscillators remain on buy signals, rather deeply in overbought territory. That overbought condition is a good thing in the early stages of a new bull market (and I believe we are still in the early stages of this rally). The amplitude oscillators are at such high numbers that they could withstand a couple of days of negative amplitude and still stay on those buy signals. Eventually, a sell signal will occur from amplitude, but it’s not immediately within reach.

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

VIXVIX,
+ 0.91%
it continued to decline slowly as the market increased. Nonetheless, a major shift in the medium-term trend of the VIX appears to be imminent.

The VIX broke below its 200-day moving average last week when it fell below 24. Now the VIX 20-day moving average is crossing below the 200-day moving average. If it keeps this cross below, it would mean that VIX’s trend is down (i.e., both VIX and its 20-day moving average are below the 200-day moving average).

A downtrend VIX is a medium-term buy signal for the stock market. This is the first time since last November that the VIX trend is down.

Lawrence Mc Millan

The construct of volatility derivatives VX00,
-5.81%
it has also improved. He had been moderately bullish on equities, but is now taking a fully bullish stance. The term structure of VIX futures is sloping (it’s a bit flat at the opposite extreme). Furthermore, the term structure of the CBOE volatility indices is positive.

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

New recommendation: Trend buy signal VIX

As noted in the Markets Comment above, VIX is on the verge of a major medium-term buy signal for equities as it is starting to trend to the downside. We want to trade that signal:

IF VIX closes below 24.00 today,

THEN buy 1 SPY SEPTEMBER (16th) at-the-money call

And sell 1 SPY September (16th) call with a surprising price 15 points higher.

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

New recommendation: SPX breakout buy signal

Additionally, as noted in the Market Commentary above, SPX SPY,
-0.13%
it is on the verge of a major breakout to the upside.

IF SPX closes above 4170 for two consecutive days,

THEN buy 1 SPY SEPTEMBER (16th) at-the-money call

And sell 1 SPY September (16th) call with a surprising price 15 points higher.

If purchased, we would stop with an SPX close below 4070.

New recommendation: VanEck Oil Services ETF

This recommendation is based solely on the buy signal of the put-call ratio for the VanEck Oil Services ETF OIH,
-2.84%.
From the accompanying chart, it can be seen that the previous buy signals over the past year have been timely. As these are high priced options, we will use a call bull spread.

Buy 2 OIH September (16th) 230 calls

And sell 2 OIH September (16th) 250 calls

In line with the market.

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

We will maintain this position until the weighted the put-call ratio for OIH remains on a buy signal.

Lawrence Mc Millan

Follow-up action

All stops are mental closure stops unless otherwise specified.

We are going to implement a “standard” roll procedure for our SPY spreads: in any vertical bullish or bearish spread, if the underlying hits the short strike, then it rolls the entire spread. It would roll on in the case of a call bull spread or roll down in the case of a bear put spread. Stay on the same deadline and keep the same distance between shots unless otherwise noted.

Long 6 AMLX needle (19th) 22.5 calls: Lift the closing stop at 21.50.

Long 1 SPY needle (19th) 398 call and short 1 SPY ago (19th) 418 call: A bull spread SPY call was originally bought in line with the McMillan Volatility Band (MVB) buy signal and was rolled. It was recently reset when SPY traded at 398 on July 21st. Its goal is for SPX to hit the + 4σ band, and that has happened, so sell this spread now.

Long 10 CRNT Aug (19) 2.5 calls: Aviator Networks AVNW,
-0.19%
announced that it has submitted a non-binding revised proposal to acquire all outstanding shares of Ceragon Networks CRNT,
-3.62%
for $ 3.08 per share ($ 2.80 in cash per share, plus $ 0.28 in stock). Keep holding for now.

Long 2 COWN needle (19th) 30 calls: The COWN company,
+ 0.18%
received an offer to buy for $ 39 in cash. Sell ​​these calls at a price of 8.20 or more; leave the rest for the arbs risk.

Along 2 AAPL September (16th) 160 calls: This position was restored when Apple AAPL,
-0.55%
trading at 160. We will hold them as long as the buy signal of the put-call ratio remains in effect.

Long 2 SPY needle (19th) 411 calls and short 2 SPY ago (19th) 426 calls: These spreads were bought on July 21, when several indicators generated buy signals. So they were rolled up when SPY traded at 411 on July 29th. We will stop this trade in the following way: sell half if the wide oscillators roll back to sell signals and sell half if the equity put-call ratios roll back to sell the signals. Both remain on the buy signals right now (see the market comment above).

Long 1 SPY September (16th) 402 put and short 1 SPY September (16th) 377 put: 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,
-4.85%
it stays on a buy signal.

Send questions to: lmcmillan@optionstrategist.com.

Lawrence G. McMillan is president of McMillan Analysis, a registered advisor for investments and commodities trading. McMillan may hold positions in the securities recommended in this report, either personally or in client accounts. He is an experienced trader and money 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 contained in this newsletter has been carefully compiled from sources believed to be reliable, but the accuracy and completeness are not guaranteed. McMillan Analysis Corporation officers or directors, or accounts managed by such persons, may have positions in the securities recommended in the advisory.

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