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

Opinion: The S&P 500 is very close to breaking through this important level and challenging the bear market trend line.
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The S&P 500 index could secure two big bullish rallies
SPX,
-0.07%

milestone

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

Second, the VIX trend is changing, meaning an intermediate-term buy signal. More about that later.

Lawrence McMillan

As the stock market advances, certain indices are overbought. They will eventually generate sell signals, and we will trade when they occur.

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

However, we will not trade that signal. We will wait to see if there is confirmation of that “classic” sell, meaning the Macmillan Volatility Band (MVB) sell signal. That we will trade, but it is not necessarily guaranteed.

In any case, the “Classic” or MVB sell signal is yet to come.

Equity-only put-call ratios tend to fail and thus both ratios remain bullish in their outlook for the stock. The weighted ratio is declining even faster and is already in the bottom half of its chart As long as these ratios are declining, it is bullish for the stock market.

Lawrence McMillan

Lawrence McMillan

Breadth has strengthened in this rally, and both breadth oscillators remain in buy signals – rather deeply in overbought territory. This overbought condition is a positive thing 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). Breadth Oscillators are so numerous that they can withstand several days of negative breadth and still remain in that buy signal. Eventually, a sell signal will occur from the amplitude, but it is not immediately available.

The only remaining sell signal is the new 52-week high vs. New highs on the lower NYSE are still small (25 on Wednesday, and the high was 45 one day last week). So, this indicator remains negative.

vix
vix,
+0.68%

The gradual decline continues as the market rises. Nevertheless, a major change in the medium-term trend of the VIX appears to be at hand.

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

A downtrend VIX is an intermediate-term buy signal for the stock market. This is the first time the VIX has trended downward since last November.

Lawrence McMillan

Formation of Volatility Derivatives
VX00,
-5.81%

has improved as well. It was slightly bullish for the stocks, but now it is taking full bullish stance. The term structure of VIX futures slopes upward (it’s a little flat at the far end). Also, the term structure of the CBOE Volatility Index is positive.

In short, a “core” bearish position would no longer be justified if the SPX closed above 4170 for two consecutive days, and that could happen very quickly. In the meantime, we continue to hold our various long positions in line with our indices. Eventually, we’ll start seeing sell signals, but they haven’t emerged yet.

New recommendation: VIX trend buy signal

As noted in the market commentary above, the VIX is on the verge of a major intermediate-term buy signal for stocks that has started to trend lower. We want to trade that signal:

IF VIX off Below 24.00 today,

Then buy 1 Spy September (16).m) at-the-money call

and 1 SPY September (16m) calls with an attractive price of more than 15 points.

If this position is established, we will hold it until the $VIX breaks above its 200-day moving average. Specifically, close yourself out 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, the SPX
the spy
-0.06%

A major upside breakout is on the verge.

IF SPX off Above 4170 for two consecutive days,

Then buy 1 Spy September (16).m) at-the-money call

and 1 SPY September (16m) calls with an attractive price of more than 15 points.

If bought, we would stop ourselves at the SPX below 4070.

New recommendation: VanEck Oil Services ETF

This recommendation is based solely on the put-call ratio buy signal for the VanEck Oil Services ETF
OIH,
-3.00%
.
From the accompanying chart, one can see that the previous buy signals over the past year have been well timed Since these are high-priced options, we’re going to use a call bull spread.

Buy 2 OIH September (16m) 230 calls

and sold 2 OIH September (16m) 250 calls

Online with the market.

OIH: 231.85 Sep (16m) 230-250 Call Bull Spread: 8.30 Bid, Offered at 9.30

As long as we hold this position weighted The put-call ratio for OIH is in a buy signal.

Lawrence McMillan

Follow the action

All stops are mental termination stops unless otherwise noted.

We’re going to apply a “standard” rolling approach to our SPY spreads: in any vertical bull or bear spread, if the underlying hits a short strike, roll the entire spread. That will roll up In the case of a call bull spread or roll down Spread in a bear case. Stay the same duration, and keep the distance between strikes the same unless otherwise instructed.

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

Long 1 SPY August (19m) 398 calls and short 1 SPY August (19m) 418 calls: A SPY call bull spread was originally purchased in line with the Macmillan Volatility Band (MVB) buy signal and rolled. Its most recent launch was on July 21st when the SPY traded at 398. Its goal is to touch SPX’s +4σ band, and it did, so sell this spread now.

Long 10 CRNT August (19th) 2.5 calls: Aviate Network
AVNW,
+1.09%

announced that it has submitted a revised non-binding offer to acquire all of the outstanding shares of Seragon Networks
CRNT,
-3.08%

$3.08 per share ($2.80 per share in cash, plus $0.28 in equity consideration). Continue to hold for now.

Long 2 COWN August (19m) 30 calls: Company
Coun,
+0.21%

Received a takeover offer for $39 cash. Sell ​​these calls at 8.20 or higher; Leave the rest for risk arbs.

Long 2 AAPL Sep (16m) 160 calls: When Apple wraps up this position
AAPL,
-0.52%

160 is traded. We will hold them as long as the put-call ratio buy signal is valid.

Long 2 SPY August (19m) 411 call and short 2 SPY August (19m) 426 calls: These spreads were bought on July 21, when several indices generated buy signals. They were then rolled up on July 29 when the SPY traded at 411 We will close ourselves out of this trade in the following manner: Sell half if the Breadth Oscillators return to sell signals and sell half if the equity-only put-call ratio sell signal rolls back. Both remain in buy signals at this point (see market commentary above).

Long 1 SPY Sep (16m) 402 puts and short 1 SPY Sep (16m) 377 put: Exit this position when SPX closes above 4170.

Long 3 MRO October (21St) 24 calls: Marathon oil put-call ratio as long as we hold this position
MRO,
-4.15%

A buy signal remains.

Send questions here: lcmmillan@optionstrategist.com.

Lawrence G. Macmillan is president of Macmillan Analysis, a registered investment and commodity trading advisor Macmillan may hold positions in the securities recommended in this report both personally and for client accounts. He is an experienced trader and money manager and the author of the best-selling book “Alternatives as a strategic investment

Disclaimer: ©Macmillan Analysis Corporation is registered as an investment adviser with the SEC and a commodity trading adviser with the CFTC. 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 Macmillan Analysis Corporation or accounts managed by such persons may have positions in the securities recommended by the Advisor.

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