This holiday-shortened report contains market comment and follow-up action on existing positions. The full, regular report will resume next week.
The stock market, as measured by the S&P 500 Index
SPX,
made new relative highs for the year so far and for this leg of the bullish market that began last October. That means that the next resistance areas are 4510 and 4630, with the latter potentially being strong resistance. There were a couple of gaps on the SPX chart, which have been filled by the pullback to the 4400 level. There is support at 4330, and a drop below that level would be bearish.
The McMillan Volatility Band (MVB) sell signal remains in place. It is the only confirmed sell signal among our indicators at this time, although several indicators are severely overbought and could produce sell signals in the coming days and weeks. The target for the MVB trade in the lower -4σ Band, which is currently at 4270 and rising.
Equity-only put-call ratios continue to decline. That means they are still on buy signals. They have, however, reached the bottoms of their charts, so they are extremely overbought. Even so, a sell signal will not occur until they roll over and begin to trend higher.
Breadth has been strong for the past week or so, and both breadth oscillators are on buy signals, but are in overbought territory. These oscillators have jumped back and forth between buy and sell signals so often in recent months that we are not basing any trades on the at this time.
New 52-week highs on the NYSE have continued to dominate new 52-week lows. So, this indicator remains bullish. It will remain in that state until new lows exceed the number of new highs for two consecutive trading days.
VIX
VIX,
has roughly hovered around the 14 level for over a month. That means the trend of VIX buy signal remains in effect. VIX would signal trouble if it were to quickly rise at least 3.00 points (over a three-day or shorter time period). Otherwise, it is not a problem for stocks.
The construct of volatility derivatives remains bullish for stocks, as well. That is, the term structures of the VIX futures and of the CBOE Volatility Indices continue to slope upwards.
Overall, we are maintaining a “core” bullish position, but are raising trailing stops and rolling strikes up where appropriate. The only sell signal we have at the current time is the MVB sell signal, but we will trade any confirmed signals around that “core” position.
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.
Long 3 AMAM July (21st) 12.5 calls: Raise the AMAM
AMAM,
trailing stop to 14.20.
Long 800 KOPN
KOPN,
: The stop remains at 1.70.
Long 2 SPY July (21st) 439 calls: This is our “core” bullish position. Stop yourself out of this trade if SPX
SPX,
closes below 4330. The position was rolled twice. Roll up every time your long SPY option is at least 6 points in-the-money.
Long 1 SPY July (21st) 439 call: Was bought in line with the “New Highs vs. New Lows” buy signal. Stop out of this trade if, on the NYSE, new lows outnumber new highs for two consecutive days. The position was rolled up twice. Roll up every time your long SPY option is at least 6 points in-the-money.
Long 2 PFG July (21st) 70 calls: Roll up to the July (21st) 75 calls. We will hold this position as long as the weighted put-call ratio remains on a buy signal.
Long 1 SPY Aug (18th) 434 put and Short 1 SPY Aug (18th) 404 put: This position was established in line with the MVB sell signal of June 23rd, when SPX closed below 4151. Hold until SPX trades at the -4σ Band (the profit “target”) or trades above the +4σ Band, which would stop out the trade.
Long 10 VTRS August (18th) 10 calls: We will hold this position as long as the weighted put-call ratio for VTRS
VTRS,
is on a buy signal.
Long 5 CCL
CCL,
Aug (18th) 17 calls: Raise the stop to 16.80.
Long 2 PRU Aug (18th) 87.5 calls: Continue to hold PRU
PRU,
calls as long as the weighted put-call ratio remains on a buy signal.
Send questions to: [email protected].
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 best-selling book, Options as a Strategic Investment. www.optionstrategist.com
©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.
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