MW The S&P 500 just broke a major support. Another 10% decline is likely.
By Lawrence G. McMillan
This is a good time to take risk off the table - and these stock-market charts prove it
With the Iran conflict still highly volatile, professional traders are worried. Those worries are expressed through higher put-call ratios and an increase in volatility-related indices and products.
They have good reasons. The S&P 500 Index SPX closed at 6,673 on Thursday - below its December low of 6,720. When SPX or the Dow Jones Industrial Average DJIA close below previous December lows in the first quarter of the new year, that is bearish. On average, another 10% decline follows eventually.
The SPX chart had already turned downward, and the 20-day moving average as well as the "modified Bollinger Bands" are trending lower. The next support is at 6,500 to 6,550.
The trade to make now: Buy 2 SPY SPY (April 17) at-the-money puts and sell 2 SPY (April 17) puts with a striking price 50 points lower. Use a close back above 6,850 by SPX as an initial trailing stop.
Equity-only put-call ratios continue to rise, and that is bearish for stocks. The standard ratio is solidly on a sell signal, making new relative highs. However, the weighted ratio is still below last week's highs. If it exceeds those, it too will be back on a solid sell signal.
Market breadth is weak, so both breadth oscillators remain on sell signals currently.
New lows continue to outnumber new highs on the NYSE, but that alone is not a sell signal. This indicator remains in a neutral status. It would take two days on which new lows number more than 100 in order to generate a sell signal.
VIX VIX is relatively high. The uptrend in VIX is in place, and so is the trend of VIX sell signal (for stocks). While there is technically a "spike peak" buy signal in place, we are not taking it (the last three have generated small losses) unless other VIX indicators begin to calm down. For example, the inversion in the front end of the VIX futures curve now encompasses four months, and that is bearish for stocks. In fact, the entire construct of volatility derivatives is taking on a bearish outlook for the stock market.
Trading strategies
Traders hedging stocks are buying equity puts, and that increases the equity-only put-call ratios. Meanwhile, traders worried about the broad market are buying puts on the SPX, which in turn translates to an increase in the VIX and all of its related products: futures, options on those futures, and volatility ETFs. These are increases in implied volatility, not necessarily realized volatility.
These increases actually began last December. It's not a new phenomenon, but now it's near a state where there are some opportunities arising for volatility traders to act. The various products that can be traded are VIX futures, VIX mini-futures, options on the VIX futures (traded at the Cboe), volatility ETFs and ETNs (which generally own VIX futures), and options on those ETFs and ETNs.
Volatility speculation
If you think the market's implied volatility is going to continue to increase (VIX rose as high as 60 last year, 65 the year before, and 85 in 2020), there are plenty of products to buy that rise along with implied volatility. The simplest is to buy options on a volatility ETF (VIXY VIXY or the leveraged UVIX UVIX).
These products own the VIX futures and are thus not designed to be bought and held, for they lose value due to time decay. However, if you catch them while VIX is increasing rapidly, they can profit handsomely.
Trading the term structure: The VIX futures term structure inverts in times of fear and uncertainty - that is, the front-month VIX futures begin to trade at higher prices than the second-month futures. Currently, that would mean that March VIX futures would be trading above April VIX futures, which they are indeed.
Also, April VIX futures are now trading above May VIX futures. The March futures expire next week, on March 18, so if one is looking to trade the term structure in a way that incorporates a further increase in uncertainty, it might be best to buy April VIX futures and sell May VIX futures.
These VIX futures spreads require substantial margin because they can revert back the other way, generating substantial losses. But sometimes, the front month can trade quite a bit higher than the second month, thus generating profits if you are aligned that way in the spread.
The VIX/SPY hedge: When volatility increases and the term structures invert, it is also the case that VIX futures begin to trade at discounts to VIX. When VIX futures trade at a steep discount to VIX, one can buy them (or buy other VIX products) knowing that the discount will have to disappear by expiration.
Even though that is an "edge," one could still lose money if VIX fell from there. So, to hedge that purchase, calls are bought on SPY. Since VIX and SPY move opposite to each other, owning calls on both is a hedge (a sort of quasi-long straddle).
If we can capture the discount on the VIX product, then the overall position has a positive expected return. Lots of things can happen, including a loss of time value premium in any options that are purchased. Regardless, this strategy has produced large profits when the term structure inverts and the VIX futures trade at large discounts for extended periods of time.
Is geopolitical concern overrated?
If you're convinced the Iran conflict will end soon and markets will stabilize, you could do the opposite of the strategies above. You could buy puts on VIX or VIX-related products. Or you could sell the front-month VIX futures and buy the second month. Eventually, that strategy would pay off because VIX eventually has to come back down to earth. But VIX could increase tremendously first, so any strategy with unlimited or large risk if VIX continues to increase should probably be left to professional volatility traders.
Earnings in focus
Next week, Micron Technology $(MU)$ is the big name to report. It has an active options market daily. The table below shows MU has moved more than 8% after six of its last 10 earnings reports - but prices often fall as the actual date approaches, so it will be worth watching. Meanwhile, Lululemon Athletica (LULU) has been a good straddle to own in the past, as it has had surprise postearnings moves of substantial size several times in the past. Accenture $(ACN)$ and Canadian Solar $(CSIQ)$ also have delivered big surprises.
The table below shows some of the major stocks that are reporting earnings next week. This list is comprised of ones that have increased implied volatility - that is, the options market is expecting a potentially volatile move after the earnings news.
Our approach is to attempt to buy the shortest-term straddle possible (generally the one expiring on the Friday after the earnings reporting date), and to exit at the close of the first full day of trading after the earnings have been reported. For the stocks listed in this table, that would mean buying the straddles expiring on March 13.
Specifically, the columns in the table (from left to right) are:
Date: Earnings reporting date.
PM?: Earnings report before the market opens ("N") or after the close ("Y").
Symbol: Ticker symbol.
Needed: The most that we would pay for the near-term straddle, with the price of the straddle expressed as a percentage of the underlying stock price. This is the percentage move that is smaller than six of the past 10 postearnings moves in this stock.
Optvol: The 20-day average of total option volume on this stock. Low numbers here indicate a potentially illiquid situation.
Date PM? Symbol Needed Optvol 3/17/2026 Y DOCU 4.74% 7,218 3/17/2026 Y LULU 9.60% 18,961 3/18/2026 N M 3.36% 9,654 3/18/2026 N WSM 6.23% 1,210 3/18/2026 Y MU 8.03% 356,714 3/19/2026 N ACN 5.56% 14,800 3/19/2026 N BABA 5.86% 152,182 3/19/2026 N CSIQ 0.56% 4,572 3/19/2026 N SIG 11.33% 2,278 3/19/2026 Y FDX 4.52% 6,464 3/19/2026 Y PL 11.03% 9,959
As an example, consider MU. In the table, it shows the "count" as 8.03%. That means if you can buy the March 20 at-the-money straddle for 8.03% of the stock price or less, you should.
Watching CarMax
This is a repeat recommendation from last week. CarMax $(KMX)$ has not yet closed below 41, although it did trade below there. The recommendation remains in effect for another week. KMX has support in the 41 area, so we are not going to take a bearish position unless KMX can break down below that support level. A put-call ratio sell signal from a similar level about a year ago was eventually profitable. There have also been a couple of put-call ratio buy signals in KMX over the past year. These signals come when there is a buildup of speculative extreme. Currently, there has been a lot of call buying, which forced the ratio lower, and now it is beginning to rise. If the stock breaks support, we will take the following trade.
If KMX closes below 41, then buy 2 KMX (April 17) 42.5 puts in line with the market.
If this position is taken, then we will hold as long as the weighted put-call ratio for KMX remains on a sell signal.
New recommendation: H&R Block
There is a new put-call ratio buy recommendation in H&R Block $(HRB)$. The stock has been in a severe downtrend for almost a year, and now looks like it's trying to put in a bottom. The chart shows a double-bottom pattern and a stock poised to break out over resistance at $32.50. Perhaps the 2026 tax season will help, unless it's already baked into the stock price. In any case, if HRB can indeed break out over $32.50 on a closing basis, then we will act on this put-call ratio buy signal.
If HRB closes above 32.50, then buy 3 HRB (April 17) 30 calls in line with the market.
Follow-Up Action:
All stops are mental closing stops unless otherwise noted.
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March 14, 2026 12:17 ET (16:17 GMT)
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