MW Stocks tread water - but a wave of volatility is building
By Lawrence G. McMillan
S&P 500 analysis shows technical sell signals are flashing despite Nvidia earnings hype
The S&P 500 Index SPX had shown several new sell signals, but then the market rallied in part on the expectation that Nvidia (NVDA) earnings were going to be "wonderful" - but they weren't. Nvidia repeated its pattern: Analysts overstate the expected earnings, and the stock falls back when those expectations are not met. The S&P 500 was basically flat on Thursday but the index chart remains positive; first support at 7,330 with additional support levels down to the major support at 7,000.
Equity-only put-call ratios, meanwhile, gave confirmed sell signals; Wednesday's rally was accompanied by call buying and the equity-only put-call ratios dipped - but both ratios remain on sell signals for now.
Both market breadth oscillators generated sell signals about a week ago. But breadth was quite positive on Wednesday. New highs exceeded new lows, so this indicator remains in a neutral status.
The VIX VIX doesn't seem to be fazed by anything. It remains in a tight range, near both its 20- and 200-day moving averages. I've seen recent articles saying that this is the harbinger of negative things for stocks, but really all we need to watch for is when VIX establishes a trend. Until it does, there is no trend of VIX signal in place at this time.
The construct of volatility derivatives remains positive for stocks.
So, the SPX chart remains bullish, and we'll see if the recent sell signals crumble in the face of yet another rally or if they can hold their position. Regardless, we will follow the indicators and not try to guess the market. Continue to roll deeply in-the-money options.
Equity-only put-call ratio sends a sell- signal
As noted in the commentary above, both equity-only put-call ratios are now on sell signals. These ratios have a strong track record, so we are going to add a SPY put spread.
Buy 1 SPY (June 26) at-the-money put and sell 1 SPY (June 26) put with a striking price 40 points lower.
We will hold this spread as long as either of the two equity-only put-call ratios remains on a sell signal. In addition, we would stop ourselves out of this position if the ratios fall back to new lows, below last week's lows.
Earnings to watch
Stocks reporting earnings next week that investors should watch include ANF, COST, MDB, MRVL and ZS. The ones that we look for as earnings "surprises" have a particular pattern of implied volatility heading into the earnings.
The following table shows the stocks that are reporting earnings next week. This list normally is comprised of stocks whose options have increased implied volatility. That is, the option 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 listed in this table, that would mean buying the straddles expiring on May 22.
Specifically, the columns below (from left to right) are:
Date: The earnings reporting date.
Time: Whether earnings are expected before the market opens ("AM") or after the close ("PM").
Symbol: The stock symbol.
Needed: The most that we would pay for that near-term straddle, with the price of the straddle expressed as a percentage of the underlying stock price. In reality, this is the percentage move that is smaller than six of the past ten post-earnings 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 Time Symbol Count=6 OptVol 5/26/26 PM ZS 8.49% 12,620 5/27/26 AM ANF 5.10% 3,629 5/27/26 AM PDD 4.60% 36,798 5/27/26 PM MRVL 10.46% 115,381 5/27/26 PM SNOW 11.40% 38,879 5/28/26 PM COST 1.75% 28,426 5/28/26 PM MDB 18.34% 9,356
The MDB (May 29) at-the-money straddle recently traded for less than the "count" percentage. The at-the-money straddle might be prohibitive, since it costs 53 points (or $5,300). But one can buy out-of-the-money strangles - equidistant put and call strikes from the at-the-money strike - for less. For example, early Thursday the MDB (May 29) 375 call + 265 put cost about $15 and was roughly 50 points out-of-the-money for both strikes. All items in the table should be checked just before the earnings are announced, for that would be the time to buy the straddles or strangles if they do satisfy the "count" requirement.
New recommendation: Digi Power X
Digi Power X $(DGXX)$ has been strong, with extraordinary stock and option volume. Those factors often lead to a meaningful trend higher, at least for a while. The stock came public only last October and quickly fell back from about $6 to $2. But in the past two months, the stock has been very strong, generating a number of momentum-related buy signals. The last gap higher was after a positive earnings report.
Buy 5 DGXX (June 18) 7 call in line with the market.
Set a trailing closing stop at $6.30 for these calls.
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.
Also, for outright long options, roll if they become 8 points in-the-money.
Long 1 TSEM (June 5) 270 call and sell 1 TSEM (June 5) 295 call. The position has been rolled up many times. Going forward, roll up - 25 points on each side - if TSEM $(TSEM)$ trades at $295 or higher.
Long 1 BKR $(BKR)$ (Jul. 17) 65 call and long 1 BKR (Jul. 17) 60 put: Roll the call up at $75 and roll the put down at $50.
Long 0 ARKK (June 18) 78 calls. These calls were stopped out on May 15 when ARKK ARKK closed below $76.
Long 4 SFL (Aug. 21) 13 calls: The calls were rolled up when SFL $(SFL)$ traded at $13 on May 13. Use a trailing closing atop at $11.80 for the calls.
Long 1 SPY (Jun 18) 730 call and short 1 SPY (Jun 18) 755 call: This position is based on the equity-only put-call ratio buy signals. Since the put-call ratios have rolled over to sell signals, close this position now.
Long 2 MHK (June 18) 105 calls. We will hold these calls as long as the weighted put-call ratio of MHK $(MHK)$ remains on a buy signal.
Long 3 BWA $(BWA)$ (June 18) 67.5 calls. Sell these calls now since the put-call ratio has rolled over to a sell signal.
Long 1 BNS (Sep. 18) 75 straddle: Roll the calls up to the 85 strike if BNS $(BNS)$ trades at $85. Similarly, roll the puts down to the 65 strike if BNS trades at $65.
Long 2 USO USO (June 18) 100 puts and short 2 USO (June 18) 90 puts: Continue to hold without a stop for now.
Long 4 SATL $(SATL)$ (June 18) 8 calls: Raise the trailing closing stop to 7.20.
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 the book, 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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May 21, 2026 20:21 ET (00:21 GMT)
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