MW Tech selloff breaks major S&P 500 support - but here's when stocks really unravel
By Lawrence G. McMillan
Technical indicators point to more weakness. Watch the VIX.
The S&P 500 SPX, after having gapped to all-time highs a little more than a week ago, is now in a modest (so far) corrective mode. SPX has now closed both of the gaps that were in place in late October and has closed below the first support level of 6,750. This is not a major breakdown of the chart at this point. SPX has merely pulled back to its rising 20-day moving average.
The next support level is the 6,500 to 6,550 level that has been tested and held several times. If that were to be broken, then a much more bearish outlook would be in store.
The McMillan volatility band (MVB) sell signal remains in place. Its target is the -4<SIGMA> Band, which is currently at 6,500 and more or less moving sideways. Of course, if the market falls to there, realized volatility will accelerate, and that band will move lower.
Equity-only put-call ratios continue to rise, so their sell signals (for the stock market) of a couple of weeks ago remain in place. As long as the ratios are rising, that is bearish for the stock market.
Market breadth has generally been poor since Oct. 28, and both breadth oscillators remain on sell signals. They both dipped down into oversold territory, so a meaningful improvement in breadth that lasts two or three days could generate a buy signal. For now, though, they remain in a bearish state, and they can stay oversold while the market declines.
New NYSE lows numbered more than 100 one day this week but did not repeat that for a second consecutive day - so this indicator remains in a neutral state.
Realized volatility (HV20) continues to remain elevated, at 15%. That is also a negative for stocks.
The above indicators are what we call the "internal indicators," and they are and have been mostly bearish for a couple of weeks.
What remained bullish are the indicators associated with VIX VIX and implied volatility. That is beginning to change, though, as these indicators are weakening.
First, there is a VIX "spike peak" buy signal in place (green "B" on the VIX chart below). We are going to stop that out if VIX returns to "spiking" mode - a rise of at least 3.0 points, using closing prices, over any three-day or shorter time frame. So far, VIX has not returned to "spiking" mode, even though it has been rising over the past few days. Today, a close at or above 21.01 would constitute a return to "spiking" mode.
In addition, a trend of VIX buy signal is still in place too (pink "B" on the VIX chart). That would be stopped out if VIX were to close above its 200-day moving average $(MA)$ for two consecutive days. It closed above that on Nov. 6, so another close above 19.40 by VIX today (Nov. 7) will stop out this buy signal. This will not generate a trend of VIX sell signal. The 20-day MA of VIX has to cross above the 200-day MA for that to happen. It's possible in the fairly near future, but probably not today.
The construct of volatility derivatives has been weakening as well. The term structures are still sloping upward at this point, so that is positive for stocks. Also, there has not been an inversion in the front two months of the VIX futures, so that is positive as well. But these measures are far less certain than they were a week ago, so they bear close watching.
Also, the premium on the VIX futures has been dwindling. Our weighted VIX futures premium indicator, VOLFUTA, is still barely in positive territory for stocks, at 0.73. But if it if falls below 0.50, that would cancel out a buy signal for ProShares Short VIX Short-Term Futures ETF SVXY, the inverse VIX ETF. And a move into negative territory by VOLFUTA would be bearish for the stock market in general.
So, conditions are beginning to be less positive. The bull market is still intact as long as SPX is above 6,500, but several sell-signals have been confirmed, and we have taken positions in line with those as well. Continue to roll deeply in-the-money positions.
New recommendation: Support breaks on SPX
Since support has broken on SPX, we want to add a bear spread:
Buy 1 SPY SPY (Nov. 28) at-the-money put and sell 1 SPY (Nov. 28) put with a striking price 40 points lower.
Stop out of this trade is SPX closes above 6,760.
Follow-up actions
All stops are mental closing stops unless otherwise noted.
We are using a standard rolling procedure for our SPDR S&P 500 ETF Trust $(SPY)$ 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.
Also, for outright long options, roll if they become 8 points in-the-money.
Long 2 APH (Nov. 21) 130 calls: The stock is making new highs. Raise the trailing closing stop to 130 for these APH $(APH)$ calls.
Long 1 TSEM (Nov. 17) 85 call and short 1 TSEM (Nov. 21) 95 call: The entire spread was rolled up 10 points on each side, when TSEM $(TSEM)$ traded at 85. Raise the trailing, closing stop to 76 for this spread. Roll the entire spread up 10 points if TSEM trades at 95.
Long 1 SPY (Nov. 21) 685 call and short 1 SPY (Nov. 21) 705 call: This spread should now be closed, since new lows outnumbered new highs for two consecutive days on the NYSE.
Long 0 ATAI $(ATAI)$ (Nov. 21) 6 calls: Stopped out on November 5.
Long 1 SPY (Nov. 21) 665 put and short 1 SPY (Nov. 21) 615 put: This is the position based on the MVB sell signal. Continue to hold until SPX touches either of the +/-4<SIGMA> bands.
Long 2 BXP (Jan. 16) 72.5 puts: We will hold this position as long as the weighted put-call ratio for BXP $(BXP)$ remains on a sell signal.
Long 0 BEEM common: This position was stopped out when BEEM $(BEEM)$ closed below its stop at 2.75 on October 30.
Long 1 SPY (Nov. 28) 685 call and short 1 SPY (Nov. 28) 700 call: This is the position based on the most recent VIX "spike peak" buy signal. Stop out if VIX closes above 20.16 on any day. Otherwise, we will hold for 22 trading days. The original spread was rolled up when SPY traded at 685 on October 28.
Long 2 BSX (Dec. 19) 100 calls: We will hold these calls as long as the weighted put-call ratio for BSX $(BSX)$ remains on a buy signal.
Long 4 SVXY (Nov. 21) 50 calls: We compute a weighted futures premium composite, and we call that calculation VOLFUTA. It currently stands at 0.73. This trade would be stopped out if it were to fall to 0.50, and that seems almost certain to occur today. So, sell these 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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November 07, 2025 13:16 ET (18:16 GMT)
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