The S&P 500 index has hit all-time highs almost every day – 13 of the last 14 trading days to be precise.
The Nasdaq indices have done almost as well. Even the Dow Jones Industrial Average DJIA, + 0.09%,
who lagged behind has now joined the party. However, the broader market – including many small caps, as measured by the Russell 2000 Index RUT, -0.39% and the iShares Russell 2000 ETF IWM, -0.27% – is clearly lagging behind. This lag in the small caps is reflected in some of our other indicators, particularly in breadth and put-call ratios.
Since the S&P 500 SPX is strong at -0.19%, you have to stay bullish in the market for the time being. There is support for SPX at 4290 (last week’s low), 4165 (June low) and 4060 (May low). As long as SPX stays above support, its chart will remain bullish.
There is really no resistance as new intraday highs are made every day. In this case we sometimes consider the location of the + 4σ “modified Bollinger Band” (mBB) as a possible resistance. It is currently at 4406 and rising.
A McMillan Volatility Band (MVB) sell signal has not established itself because SPX is currently below the + 4σ band and because there was no follow-up on the previous occasion when there was a “classic” mBB sell signal.
Stock put-call ratios are one of the bearish internals. There has been a significant amount of put buying in the past few weeks and the ratios have risen and improved. As long as these rates rise, this is a sell signal for stocks. The standard rate has increased more than the weighted rate, but both are increasing.
Another bearish factor is breadth. There was a very strong, positive day of latitude on July 9th, but otherwise the latitude was abysmal. Both latitude oscillators are on sell signals, and the “stocks only” latitude oscillator was so bad that it is already in oversold territory. This is a precursor to a buy-signal, but the breadth has to improve a lot from these levels for this buy-signal to be confirmed.
Even the almost always bullish comparison of the new 52-week highs with the new 52-week lows is beginning to slide. It has gone negative on the Nasdaq and is barely positive on “stocks only”. It’s better on the NYSE, but still not nearly as positive as it was. For the time being, this indicator clings to the “bullish” status (for stocks).
Despite the issues the above market internals warn us about, the volatility complex has remained fairly positive for the stock market in general. The CBOE Volatility Index VIX, + 3.98% “Spike Peak” buy signal from July 9th remains in effect. (In fact, there has been a “spike-peak” buy signal since mid-May, with the exception of two days when it went up and then down again.)
The trend of the VIX is bullish for stocks as well as the trend is downward. In addition, the volatility derivative construct remains positive for the stock market, as the VIX futures are traded at a premium to the VIX and the maturity structures continue to trend upwards.
Therefore, given the strong trends in SPX (up) and VIX (down), we are once again maintaining a bullish view and position of the “core”. However, we will trade confirmed sell signals around this bullish “core position” as the general warning pages of the market internals should not be ignored.
New recommendation: iStar
iStar Inc. STAR, +1.31% reviews the sale of net lease assets. The stock hit a 13-year high. The patterns of stock volume are very strong and are improving rapidly. There is assistance at 20-1 / 2 to 21.
Buy 5 STAR (August 20) 22.5 calls according to the market.
Then put a closing stop at 8:50 p.m.
Follow-up
All stops are mental shutdowns unless otherwise noted.
Long 3 expiring DUK (July 16) 100 views: roll to August 20th 100 calls.
Long 1 SPY (July 30) 433 Call and Long 1 SPY expiring (July 16) 420 Put: This was originally a long straddle. Let the put expire worthless. Put a stop to sell the call if SPY closes below 431.
Long 4 expiring CERN (July 16) 80 views: Sell these calls, not replace them.
Long 0 CSOD (July 16) 47.5 views: those calls were stopped on July 14th when CSOD closed at 51.
Long 4 DBX expiring (July 16) 28 calls: roll to (Aug 13) 30.5 calls. Increase the trailing, closing stop to 29.80.
Lange 6 expiring CVA (July 16) 17.5 calls: CVA has received and accepted a takeover bid for US $ 20.25 in cash. Sell your calls to close the position. Don’t sell them below par.
Lange 4 expiring SDC (July 16) 9 calls: the rumors didn’t materialize here, so phase out these calls and don’t replace them.
Long 1 expiring RAPT (July 16) 30th call: I would have thought something more volatile would have emerged with this stock by now, but that’s not the case. Role to 20th August 30th call. The stop itself remains at 26.
Long 2 expiring SPY (July 16) 425 calls: were bought on June 24th as the SPX hit new highs and closed above 4,260. Roll to the SPY (Aug 6) 435 calls. Stop at a close below 431 of SPY.
Long 1 SPY (July 23) 425 Call: This position was originally bought in accordance with the VIX buy signal “Spike Peak”. It will persist for 22 days unless VIX reverts to “spiking” mode – that is, an increase of 3.00 points or more over any 3 day period using the closing prices. When VIX returns to spiking mode, take the next “spike-peak” buy signal that occurs.
Long 1 SPY (July 30) 429 put and Short 1 SPY (July 30) 409 put: this spread was bought based on sell signals from the latitude oscillator. In the past week, the width took a positive turn, but then worsened again. So this spread will still be held. We will hold this spread as long as these latitude oscillators stay on sell signals. This status is updated weekly.
Long 2 HOLX (September 17th) 65 calls: Stop at a closing price below 65.
Long 1 SPY Aug (August 20) 433 put and short 1 SPY Aug (August 20) 408 put: this spread was bought in line with the sell signals of the pure sell share-put-call ratio. Those sell signals are still there so keep this spread going. We will update the situation weekly.
Long 4 AVCT (August 20) 5 calls: Stop at a closing price below 5 on AVCT.
Send questions to: lmcmillan@optionstrategist.com.
Lawrence G. McMillan is President of McMillan Analysis, a registered investment and commodities trading advisor. McMillan may hold positions in the securities recommended in this report, both personally and in client accounts. He is a seasoned trader and money manager, and author of the bestseller, undefined
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source https://thedailytradingnews.com/opinion-stay-bullish-on-the-sp-500-for-now-despite-a-number-of-red-flags/
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