MW Stock traders are wary of this market - and retail investors should be too
By Lawrence G. McMillan
S&P 500 is trying to rally, but geopolitical and economic realities stand in the way
The S&P 500 Index SPX has tried to rally this week on hopes for an end to the Iran hostilities and a resulting drop in the price of oil. That has improved some of the key market indicators - but not enough to generate confirmed buy signals yet. A couple are now close to being confirmed, but I won't be convinced until the construct of volatility derivatives begins to improve.
The SPX chart is still bearish and remains in a strong downtrend, marked by a string of lower highs and lower lows. The declining SPX 20-day moving average is at 6,720, while trendlines and some technical stop indicators are in the 6,740-6,750 area. Below those levels the bears are still in charge. There is support at 6,475-6,500 - which is where SPX was trading on Thursday.
The first sign of potential improvement for the U.S. market now potentially comes from the "modified Bollinger bands" (mBB).
SPX closed below the -4<SIGMA> band last Friday. On Wednesday it closed above the -3<SIGMA> band. That generates a classic mBB buy signal. We don't trade those because they have a history of being quickly reversed. Rather we wait for further upside confirmation in order to generate a McMillan volatility band (MVB) buy signal. That would occur if SPX trades above 6,655 at any time (it doesn't have to close there).
Equity-only put-call ratios remain on sell signals. The standard ratio has moved more or less sideways this week, but the weighted ratio continues to climb. They will generate buy signals if they roll over and begin to trend down.
Market breadth improved significantly on March 25, and if breadth is positive again on March 26, that will generate confirmed buy signals from both breadth oscillators. Meanwhile, new lows continue to dominate new highs on the NYSE, so this indicator remains bearish.
VIX VIX has remained fairly elevated - continuing to trade slightly above 25.0 for the most part. The trend of VIX sell signal remains in place. What we've been watching most closely is the construct of volatility derivatives (the term structures of the Cboe volatility indices and the VIX futures, as well as the premium on the VIX futures). That construct remains bearish in its outlook for stocks: the term structures are sloping down-to-flat, and the VIX futures are trading at a discount to VIX.
So, the SPX chart remains negative. If buy signals are confirmed, we will act on them, but we would prefer to see a positive change in the construct of volatility derivatives before doing anything too aggressive on the long side.
Earnings slow to a trickle
The number of stocks reporting earnings has slowed down considerably. Next week there are only three of interest, and the largest is Nike $(NKE)$. The ones that we look for as earnings "surprises" have a particular pattern of implied volatility heading into the earnings.
The accompanying NKE two-year chart has two graphs. The stock price is shown on the lower graph while the upper graph shows implied volatility.
One can see that implied volatility spikes and then plunges, creating a sawtooth pattern. This implied volatility increases as the earnings date approaches and then plunges after earnings are announced. It is actually something of an optical illusion, for the options are not getting more expensive in terms of price as the earnings date approaches, but in fact are remaining the same.
That is, the option trading "universe" prices the straddle prior to the earnings and keeps it around that price until earnings are announced. An option that doesn't lose value to time decay has the appearance of increasing implied volatility. So when we publish the list of potential post-earnings moves, the stocks have this sawtooth pattern surrounding past earnings dates, as NKE shows here:
The table below shows three stocks reporting earnings next week. This list normally is comprised of stocks whose options 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 stock in this table, that would mean buying the straddles expiring on April 2.
Specifically, the columns below (from left to right) are:
Date: The earnings reporting date.
Pm?: Whether the earnings are to be reported before the market opens ("N") or after the market closes ("Y").
Symbol: The stock symbol.
Needed: The most we would pay for that near-term straddle, with the price of the straddle expressed as a percentage of the underlying stock price (the "count"). This is the percentage move that is smaller than six of the past 10 post-earnings moves in this stock.
Optvol: The 20-day average of total option volume on this stock. Low numbers indicate a potentially illiquid situation.
Date pm? Symbol Needed Optvol 3/31/2026 Y NKE 6.76% 84,904 4/1/2026 N LW 10.00% 2,995 4/1/2026 Y RH 13.99% 4,122
NKE shows the "count" as 6.76%. That means if we can buy the April 2 at-the-money straddle for 6.76% of the stock price or less, we should. On Thursday, the at-the-money NKE (April 2) 53 straddle traded for about 9% of NKE's stock price, so this straddle would not be a buy at that price. However, straddles often become a bit cheaper as the reporting date approaches, so these are all worth monitoring as their earnings dates approach.
New recommendation: CarMax $(KMX)$
There is a repeat recommendation: CarMax (KMX) has not closed below $41. 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. These signals come when there is a buildup of speculative extreme. There had 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 make the following trade:
If KMX closes below $41, then buy 2 KMX (Apr. 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 $(HRB)$
This also a repeat recommendation from last week. HRB stock (HRB) has been in a severe downtrend since last tax season ended. The stock now has formed a double-bottom and is trying to break out over resistance at $32.50. 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.
New recommendation: Blackstone (BX)
The weighted put-call ratio in Blackstone (BX) has given a new buy signal. It is coming from a point of extreme pessimism on the stock, probably created by the unknown liability surrounding the private debt that the company has marketed. In any case, the stock seems to be trying to build a base, and if it can close above $116, that would be enough to act on this put-call ratio buy signal.
If BX closes above 116, then buy 2 BX (May 15) 115 calls in line with the market.
If bought, we will hold the calls as long as the weighted put-call ratio remains on a buy signal.
New recommendation: Potential MVB buy signal
As noted in the market commentary above, there is a potential McMillan volatility-band buy signal setting up. There is no guarantee it will occur, but the first step has been completed: a close below the -4<SIGMA> "modified Bollinger band" and then a close above the -3<SIGMA> band. But for the buy signal to be confirmed, SPX must trade above 6,655.
If SPX trades above 6,655, then buy 1 SPY SPY (April 24) at-the-money call and sell 1 SPY (April 24) call with a striking price 20 points higher.
If purchased, we will set stops and targets. Since this spread is likely to be quite pricey, we may also be setting a dollar stop if the spread purchase is confirmed.
Follow-up action:
All stops are mental closing stops unless otherwise noted.
We are using a standard rolling procedure for our 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 1 TSEM (April 17) 190 call and short 1 TSEM (April 17) 205 call: This stock has been strong and successively hit upper strikes of $160, $175 and $190, so this is the current spread. Continue to roll TSEM $(TSEM)$ up each time that the stock trades at the upper strikes.
Long 6 AAL (April 10) 10.5 puts: Sell these AAL $(AAL)$ puts now since the put-call ratio here has finally rolled over to a buy signal.
Long 1 BKR (July 17) 65 call and long 1 BKR (July 17) 60 put: Roll the BKR $(BKR)$ call up at $75 and roll down the put at $50.
Long 2 ARKK (April 17) 74 calls: We will hold the calls as long as the weighted put-call ratio for ARKK ARKK remains on a buy signal.
Long 2 SPY (April 17) 666 puts and short 2 SPY (April 17) 615: Use a close back above 6730 by SPX as a trailing stop.
Long 4 SFL (Aug. 21) 10 calls and long 4 SFL (Aug. 21) 10 puts: Roll the SFL $(SFL)$ calls up at $12.50 and/or roll the puts down at $7.50.
All stops are mental closing stops unless otherwise noted.
Send questions to: lmcmillan@optionstrategist.com.
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March 26, 2026 16:37 ET (20:37 GMT)
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