MW S&P 500 indicators are breaking down - but this new buy signal is flashing green
By Lawrence G. McMillan
A look behind the stock market's key support levels shows bullish NYSE activity and a hidden shift in volatility
Traders are not panicking about weaker stock-market fundamentals.
S&P 500 SPX selling pressure has accelerated, eased perhaps by Thursday's strong finish. The index has support at 7,237, then at 7,050 to 7,175, and finally at 7,000. The SPX chart has broken down and no longer can be condisdered bullish. The index would have to climb back above 7,500 to regain that status. A close below 7,000 would be extremely bearish.
The MVB sell signal is still in place (green "S" on the SPX chart). Its target is the -4<SIGMA> "modified Bollinger Band" (mBB), and that and is currently at 7,200 and declining.
Equity-only put-call ratios continue to climb, as put buying has accompanied the selling that began in earnest last Friday. As long as these ratios are rising, that is bearish for stocks, and so the sell signals from these ratios remain intact.
Market breadth has been poor, although this week it's been far worse in "stocks only" terms (i.e., over all optionable stocks) than for the NYSE. The NYSE breadth oscillator remains on a buy signal, while the "stocks only" breadth oscillator is on a sell.
But here's a surprise: New 52-week highs on the NYSE numbered more than 100 for the past two days (and they outnumbered new lows). So that is a new buy signal from this indicator.
I can see how new highs were large on Tuesday, since the market rallied strongly in the morning. But Wednesday's market is another story. This buy signal will remain in effect until new lows outnumber new highs on the NYSE for two consecutive days.
Meanwhile, the VIX VIX rose, but VIX futures were weaker. Volatility traders have certainly not viewed this decline with any sort of panic. For now, a VIX "spike peak" buy signal remains in effect. It occurred when VIX spiked to 23.34 on Tuesday and then closed more than three points below that peak. This buy signal would be stopped out if VIX were to close above 23.34. The situation with VIX is certainly tenuous, and if VIX continues to rise it is possible that it will officially establish an uptrend - which could then launch a new sell signal.
The construct of volatility derivatives is not showing any signs of panic either. Front-month June VIX futures continue to trade at a lower price than July, and that is bullish for stocks. As a result, the entire term structure continues to slope upwards. The fact that the futures didn't gain much yesterday, even though VIX was higher, has resulted in the futures trading at a discount to VIX (in the front end of the curve), but that is only a minor negative. The big negative would be if June VIX futures trade at a higher price than July.
So, with Wednesday's drop in SPX, the chart can no longer be considered positive for the short term. Even so, we will trade confirmed signals, which are in place on both sides (bullish and bearish). Since each trading system has its own stops and targets, it is possible that these can still profit without merely offsetting each other. Finally, we will continue to roll deeply in-the-money options where appropriate.
New recommendation: New highs vs. new lows buy signal
In a somewhat surprising development, new 52-week highs on the NYSE have registered more than 100 issues on each of the last two trading days, and the new highs have outnumbered new lows as well. That is a new buy signal for this indicator.
Buy 1 SPY SPY (July 17) at-the-money call and sell 1 SPY (July 17) call with a striking price 25 points higher.
This position will be held until new lows outnumber new highs on the NYSE for two consecutive days.
New recommendation: Clover Health Investments (CLOV)
Clover Health Investments (CLOV) stock has been strong lately, rallying on no specific news. That is often a good sign of an internal reason for the advance that has caught the eye of stock- and option traders. Both stock- and option volume have been heavy, which is what we like to see in these speculative situations. The options are not really expensive, either: option implied volatility is in the 37% percentile currently - below average, which is a benefit to option buyers.
Buy 8 CLOV (July 10) 4.5 calls in line with the market.
Stop out if CLOV closes below $4.
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 TSEM $(TSEM)$ (June 5) 295 call and short 1 TSEM (June 5) 320 call. The position was held for quite a while and generated some good profits, but it expired worthless and is now closed.
Long 1 BKR (BKR )(July 17) 65 call and long 1 BKR (July 17) 60 put: Roll the call up at $75 and roll the put down at $50.
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 1 BNS (Sept. 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 2 RTX (June 18) 180 calls: We will hold as long as the weighted put-call ratio for RTX (RTX )remains on a buy signal.
Long 2 IR (July 17) 70 calls: We will hold as long as the weighted put-call ratio for RTX $(RTX)$ remains on a buy signal.
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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June 11, 2026 16:33 ET (20:33 GMT)
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