MW NYSE stocks at new highs pump the market - but the VIX is sending mixed signals
By Lawrence G. McMillan
S&P 500 looks solid, and charts are positive for Amphenol, APA, wheat and Walgreens
The S&P 500 Index $(SPX.UK)$ SPX, continues to advance, making a series of new all-time highs. There is support in the zone between 5,670 and 5,770. There is no formal resistance at this time, but we often look at the +4<SIGMA> "modified Bollinger Band" (mBB) as a target. That band is rising and is near 5,900 at this time.
The McMillan Volatility Band $(MVB.AU)$ buy signal from early August remains in place (green "B" on the accompanying SPX chart). It has a target of the +4<SIGMA> Band as well.
Equity-only put-call ratios continue to fall, although their rate of descent has slowed over the past couple of days. As long as these are trending lower, it is bullish for stocks. There are some relatively small numbers coming off the 21-day moving averages over the next few days, and that might aid the ratios in moving higher. However, we would not anticipate a signal now, preferring instead to wait for confirmation.
Market breadth has improved somewhat this week, and the breadth oscillators have moved back to buy signals - albeit in modestly overbought territory. This cancels out any semblance of a sell signal, which seemed like a possibility only a week ago. Cumulative volume breadth $(CVB.AU)$ also remains bullish as it made new all-time highs along with SPX on two separate days this week. That is strong confirmation of the new highs being made by the stock market.
New highs continue to dominate new lows on the NYSE. In fact, new lows have dropped to single digits. Thus, this indicator remains solidly bullish for stocks.
VIX VIX is giving mixed signals - as it did a few weeks ago. First, there is a "spike peak" buy signal in place. That will remain the case for 22 trading days, or until VIX closes above 23.14, whichever comes first. On the other hand, there is a trend of VIX sell signal in place. That would only be stopped out if VIX were to close below its 200-day moving average $(MA)$, which is currently at 15.30 and beginning to rise more steadily.
The construct of volatility derivatives remains mostly bullish for stocks. The term structures slope upwards for the most part, except for the "election bump" - the expensive SPX options that expire just after the upcoming November election (which is now less than three weeks away).
In summary, we continue to maintain a "core" bullish position as long as SPX closes above 5,670 (and preferably, 5,770). We will add new positions when new signals are generated. Meanwhile, we are rolling deeply in-the-money calls upward to take partial profits and to reduce downside risk.
New recommendation: Amphenol Corp. $(APH)$ calls
A new weighted put-call ratio buy signal has emerged in APH $(APH.UK)$. It is occurring at about the same level as the did a year ago, and that one worked out well.
Buy 2 APH (Jan. 17) 67.5 calls in line with the market.
We will hold these calls as long as the weighted put-call ratio remains on a buy signal.
New Recommendation: Builders FirstSource Inc. (BLDR) puts
A put-call ratio sell signal has been initiated here.
Buy 1 BLDR (Nov. 15) 200 put in line with the market.
We will hold this put as long as the put-call ratio sell signal for BLDR (BLDR) remains in effect.
Follow-up action:
All stops are mental closing stops unless otherwise noted.
We are using a "standard" rolling procedure for our SPY SPY spreads: in any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread or roll down in the case of a bear put spread. Stay in the same expiration and keep the distance between the strikes the same unless otherwise instructed.
Long 1 SPY (Nov. 1) 560 put: This position is based on the trend of VIX sell signal and would be stopped out if VIX closes below its 200-day MA for two consecutive days.
Long 1 expiring SPY (Oct. 18) 573 call and short 1 SPY (Oct. 18) 590 call: This spread was bought at the close of trading on Aug. 15. It would be stopped out if, on the NYSE, new lows outnumber new highs for two consecutive days. The spread was rolled up when SPY traded at 573. Now, sell the current spread and replace it with the following: Buy 1 SPY (Nov. 15) at-the-money call and Sell 1 SPY (Nov. 15) call with a striking price 20 points higher.
Long 1 SPY (Nov. 1) 577 call and long 1 expiring SPY (Oct. 18) 549 put: This was initially a long straddle, intended to capture a large move in either direction. The puts were rolled down 10 points on September 5, when SPY traded at 549. The calls were rolled up on at least twice. Now, roll the long call up and out to the SPY (Nov. 1) 585 call. Continue to roll the call up every time it becomes eight points in-the-money (Note change from 10 to eight points). Allow the put to expire and do not replace it.
Long 2 expiring AOS $(AOS)$ (Oct. 18) 90 calls: The put-call ratio has rolled over to a sell signal, so do not replace this call.
Long 10 expiring WEAT (Oct. 18) 5 calls: These were bought because of the put-call ratio buy signal in wheat futures. We will continue to hold as long as that buy signal is in effect. Roll to the WEAT WEAT (Nov. 15) 5 calls.
Long 6 expiring APA (Oct. 18) 25 calls: This is an MVB buy signal. Roll to the APA (Nov. 1) 25 calls. Sell the calls if APA $(APA)$trades at $29 at any time. Stop out if APA closes below $23. APA is reporting earnings on Nov. 6, so the calls expiring on Nov. 8 are very expensive.
Long 2 expiring ABNB (Oct. 18) 130 calls: Sell these two calls and buy 1 ABNB (Nov. 15) 35 call. All of the options expiring after Oct. 30 are quite expensive, since that is the date on which earnings are to be reported. Raise the closing stop to $127.50.
Long 1 SPY (Oct. 25) 573 call and short 1 SPY (Oct. 25) 590 call: Sell this spread now and roll as follows: Buy 1 SPY (Nov. 15) at-the-money call and Sell 1 SPY (Nov. 15) call with a striking price 20 points higher. Stop out of the position if SPX closes below 5,670 for two consecutive days.
Long 2 PLD (Nov. 15) 125 puts: We will continue to hold these puts as long as the put-call ratio remains on a sell signal. If PLD $(PLD)$ trades at $115 or lower, roll down to the PLD (Nov. 15) 115 puts.
Long 4 LX (Nov. 15) 2.5 calls: Stop out on a close below $2.85 by LX $(LX)$.
Long 1 SPY (Nov. 15) 584 call and short 1 SPY (Nov. 15) 601 call: This position is based on the VIX "spike peak" buy signal. It would be stopped out if VIX were to close above 23.14. Otherwise, it will be held for 22 trading days.
Long 2 CLX (Nov. 15) 160 puts: This position will remain in place as long as the weighted put-call ratio of CLX $(CLX)$ remains on a sell signal.
Long 2 WBA (Oct. 25) 9.5 calls: We finally have seen a lift in WBA $(WBA)$, and this is the "alternative" Dogs of the Dow position. Buy 2 more of these same calls now.
All stops are mental closing stops unless otherwise noted.
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 securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of Options As A Strategic Investment. www.optionstrategist.com
(c)McMillan Analysis Corporation is registered with the SEC as an investment advisor and with the CFTC as a commodity trading advisor. The information in this newsletter has been carefully compiled from sources believed to be reliable, but accuracy and completeness are not guaranteed. The officers or directors of McMillan Analysis Corporation, or accounts managed by such persons may have positions in the securities recommended in the advisory.
-Lawrence G. McMillan
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October 17, 2024 07:25 ET (11:25 GMT)
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