The S&P 500 index has staged a decent rally over the past few days in another attempt by the bulls to find a trading floor. In fact, it was strong enough to challenge the “core” bearish thesis.
Make no mistake: this isn’t a bull market yet, but it could be a pause in the bear market.
the S&P SPX,
had found support in the 3720-3740 range on seven different days so that’s support. This current rally has already cleared minor resistances at 3920 and 3945 and is now aiming to close the gap at 4017.
Above that, the resistance increases. First, there is the trading range from early June: 4070-4170. Also, the ‘Modified Bollinger Band’ of +4σ sits at 4050. A move above 4170 would certainly be a turning point and a reason to upgrade the SPX chart to bullish, but that is far from happening.
Equity-only put-call ratios have confirmed their recent buy signals, falling below their early June lows. So these key indicators will remain bullish as long as they fall.
Width has also improved, although this has been going on for a few weeks now. Both broadband oscillators have buy signals and are in the slightly overbought territory. It is a positive development when the broad oscillators become overbought early in a new upmove from SPX.
Of course, it is imperative that they hold these overbought levels because if a few negative latitude days occur, they could easily revert to sell signals.
The one area that has shown no Improvement is from new 52 week highs versus lows. The number of new highs on the NYSE has been pathetic for almost a month now and shows little sign of improvement. Therefore, this indicator stays on a sell signal.
has declined somewhat over the course of this rally and that is generally bullish for stocks. The “Spike Peak” buy signal from June 15 has “expired”. By this I mean that the trading system that we have built around these ‘spike peaks’ on the VIX chart has a 22 day holding period which has now expired. This is not a sell signal, just the termination of the last buy signal.
Additionally, the VIX has closed below its 200-day moving average. This is an important development as the VIX is no longer trending higher in the medium term. Therefore, the sell signal (for stocks) that was there due to the higher trending VIX no longer stands. However, this is Not a buy signal. The VIX 20-day MA would need to break below the 200-day MA for a buy signal and that’s a long way off: The 20-day MA is at 27 and is falling while the 200-day MA MA is at 24 and slowly increasing.
Finally the construct of the volatility derivatives VX00,
remains moderately optimistic as the VIX futures tenor structure is slightly up at the front end of the curve. August VIX futures is now the front month, so we will monitor the relationship between August and September VIX futures. If August went up over September that would be going down.
In summary, we are reducing our bearish “Core” position due to the improvement on the VIX chart, but we will not exit it completely until there is improvement on the SPX chart. In the meantime, we are trading the other indicators’ buy signals around this reduced core bearish position.
New Recommendation: SPY Bull Spread
Due to the improvements in a number of indicators as mentioned in the market commentary above, we will be adding another SPY SPY,
Call bull spread on our positions. These improvements include buy signals from the stock-only put-call ratios, buy signals from the broad oscillators, and VIX closes below 24.
Buy 2 SPY August (19th) calls at the money
And sell 2 SPY Aug (19th) calls with a price 15 points higher.
Roll the spread up as usual when SPY trades at the higher strike price. The way we will back out of this trade is as follows: sell half when broad oscillators return to sell signals and sell half when pure stock put-call ratios return to sell signals. We will update these indicators weekly.
New Recommendation: Amylyx Pharmaceuticals
This recommendation is based solely on the recent performance of Amylyx Pharmaceuticals AMLX,
and its movement to new relative highs. Even if the stock chart is positive, it is necessary to trade this recommendation with call options to limit risk. This is a stock that could fall sharply if there is bad news on a drug trial.
Buy 3 AMLX August (19th) 22.5 calls
At a price of 3.00 or less.
AMLX: 22.30. August (19th) 22.5 Calls: 2.20 bid, offered at 4.00
Stop yourself on an under 18 close on AMLX.
All stops are mental closure stops unless otherwise noted.
We will implement a “standard” rolling procedure for our SPY spreads: if the underlying asset hits the short strike on any vertical bull or bear spread, the entire spread rolls. That would be a role high in the case of a call, bull spread or roll Low in the case of a bear put spread. Stay in the same expiration and keep the same distance between strikes unless otherwise specified.
Long 2 SPY Aug (19th) 366 puts and short 2 SPY Aug (19th) 346 digits: We originally bought this spread in line with the sell signal from the trend from VIX. It was rolled down twice. VIX has now closed below its 200-day moving average, which is currently just under 24, so sell those spreads now. We will re-enter if $VIX rebounds above its 200-day moving average.
Long 0 KOD July (15th) 10 calls: These calls expired worthless.
Long 1st SPY July (22nd) 382 call and short 1 SPY July (22nd) call 397: This spread was originally bought in line with the recent VIX “Spike Peak” buy signal on June 15th. Under the trading system we have developed to trade these ‘spike peak’ buy signals, now is the time to exit that spread and take the profits.
Long 3 AMLX Aug (19th) 22.5 calls: These calls were rolled up; the final stop remains at 5 p.m.
Long 1 SPY Aug (19th) 378 Call and Short 1 SPY Aug (19th) 398 call: This spread was bought in accordance with the McMillan Volatility Band (MVB) buy signal. His goal is for SPX to touch the +4σ band. The signal would be stopped out if SPX closed below the -4σ band.
Long 10 CRNT Aug (19th) 2.5 Views: Hold on while the takeover rumors spread.
Long 2 COWN Aug (19th) 30 calls: The stock is higher as the rumors continue. Keep going without stopping.
Long 2 AAPL Sep (16th) 150 calls: We will hold these as long as the buy signal from the put-call ratio remains in effect.
Send questions to: email@example.com.
Lawrence G. McMillan is President of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and the author of the bestselling 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 maintained by such persons, may have positions in the securities recommended in the recommendation.