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The stock market, every bit measured by the S&P 500 Index SPX,
,
has fallen below the 4100 level. That is pregnant considering there previously was triple resistance at that level, and when SPX broke out in a higher place that level in late Jan, information technology seemed as if the side by side leg of the “new” bull market was underway.
Still SPX has not only fallen below that supposed support level, it’s confirmed the pullback by trading all the way down to 4000. It appears that breakout above 4100 was a faux one. Those are dangerous in carry markets (we last saw ane in January 2022).
So, now at that place is resistance at 4200 (the early February highs), and while in that location might be some modest support levels just below current levels, the major support is at 3900, and then 3760-3850. If SPX falls below 3760 (the December low) that would be an extremely negative evolution.
The McMillan Volatility Band (MVB) sell indicate that was issued in early February remains in place. Its target is the -4σ “modified Bollinger Band” which is currently at about 3920, but is falling.
Disinterestedness-just put-phone call ratios are outset to weaken likewise. The weighted ratio is at present on a sell bespeak, co-ordinate to our computer analysis programs (as well equally the naked eye). This sell signal is emanating from a very low (i.east., overbought) level, and the final two from this level were sell signals in April and August of 2022 — both strong sell signals.
Meanwhile, the standard ratio has also curled up, simply our computer analysis programs are not yet “saying” that this is a sell betoken. This latest rise has a question mark on the accompanying chart.
Marketplace latitude, which had been a stalwart of the bullish indicator on the manner up in December and January, has weakened considerably. Both breadth oscillators generated confirmed sell signals as of Feb 17th. The decline since then has been swift, and breadth has been very negative, including one 90% down twenty-four hour period. That means that the latitude oscillators have already reached oversold status. Yet, the market can decline while these oscillators are oversold, so “oversold does non hateful buy.” Nosotros need to wait for a confirmed purchase signal here before interim.
Another indicator that has been bullish for quite some fourth dimension is “New 52-calendar week Highs vs. New 52-calendar week Lows.” This buy signal is in jeopardy of being stopped out, although even if that happens, a new sell signal is non necessarily in place. On Feb. 22, for the beginning time this yr, New Lows outnumbered New Highs on the NYSE. If that happens again, this indicator’s purchase betoken would exist stopped out, and the indicator would return to neutral status. A sell signal requires that New Lows outnumber New Highs for two consecutive days, and that the number of New Lows is greater than 100 on each of those two days.
The volatility complex indicators are weakening just have not turned bearish yet. First, VIX VIX,
has returned to “spiking” style — meaning that it has risen more than 3.0 points over a three-day (or shorter) time frame. That is an oversold condition, and SPX can driblet sharply while VIX is in “spiking” mode.
Eventually, though, a VIX “spike superlative” buy signal will be generated. As one can see from the accompanying VIX chart, recent “spike peak” buy signals accept not worked out all that well – relieve for the stiff buy signal virtually the Oct lows. A blue “B” on the chart is a losing organization trade, while a red “B” is a winning one. Regardless, we volition act on the new buy signal when it appears.
The
tendency of VIX remains bullish for stocks equally long as both VIX and its twenty-day moving boilerplate are below the 200-day MA. You tin can see that the 200-24-hour interval MA is just below 25 and dropping. VIX is still well below that point.
The construct of volatility derivatives remains modestly bullish for stocks, in that the term structures of the VIX futures and of the CBOE Volatility Indices go along to slope upward. We are closely watching the relationship between the 2 VIX futures front months — March and April. Should March VIX futures begin to trade at prices college than April VIX futures, that would be extremely negative. So far, that hasn’t happened, simply the deviation between the two has narrowed.
In summary, the breakdown this week, coupled with sell signals from the equity-only put-call ratios ways that yous should over again constitute a “cadre” bearish position. Then, signals from other indicators can exist traded alongside that.
New Recommendation: “Core” bearish position
As noted above, we want to found and hold a new “core” surly position:
Buy two SPY
SPY,
April (21st) puts with a striking price 10 points out-of-the-money
And Sell 1 SPY April (21
st
) puts with a striking toll xxx points lower.
Then, as an example, if SPY is trading at 400, you would buy the SPY April (21st) 390 puts and sell the SPY April (21st) 360 puts.
Initially, we volition set a stop to shut out this position if SPX closes higher up 4200.
New recommendation: Potential VIX “spike peak” buy betoken
As noted above, VIX has returned to “spiking” mode. The highest price that it has reached while in “spiking” manner has been 23.63 (and then far).
IF VIX closes at least 3.0 points below the highest price that it has reached from February 22nd
going forward, (currently 23.63),
Then
Buy 1 SPY April (7th) at-the-money phone call
And Sell 1 SPY April (seven
th
) phone call with a striking price 15 points higher.
Today, VIX is under 22, so it is possible that this buy signal could be completed as soon as the close of trading today. (it needs to fall below xx.63 at today’south close).
Follow-upwards 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 curl the unabridged spread. That would exist roll up in the case of a telephone call bull spread, or scroll 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 0 SPY Feb (24th) 412 call and Short 0 SPY Feb (24th) 426 call:
This spread was bought when the breakout over 3940 by SPX was confirmed, at the close on January 12th. It was rolled up on February 1st, when SPY traded at 412. Then it was stopped out when $SPX airtight below 4060 on February 21st.
Long 1 SPY Mar (17thursday) 410 call and Curt 1 SPY Mar (17th) 425 call:
This spread was bought in line with the “New Highs vs. New Lows” buy signals. Information technology was rolled upward on Jan 26th, when SPY traded at 404, and then it was rolled up again at expiration.
Terminate yourself out of this position if New Lows on the NYSE exceed New Highs for 2 consecutive days.
Long 0 SPY
Mar (17th) 415 call and Short 0 SPY Mar (17th) 431 call:
This merchandise was stopped out on February 21st, when $SPX closed below 4020.
Long 3 XM Mar (17th) xv calls:
Continue to agree XM XM,
while takeover rumors play out.
Long ane SPY Mar (17th) 410 put and Short ane SPY Mar (17thursday) 385 put:
This behave spread was bought in line with the McMillan Volatility Band (MVB) sell point. This trade would be stopped out if SPX were to
close
back higher up the +4σ Band. We will keep you updated regarding the position of the MVB each week.
Long 2 CTLT Mar (17thursday) seventy calls:
This takeover rumor is nonetheless “in play,” although CTLT CTLT,
stock has fallen slightly. Continue to agree while these rumors play out.
Long three MANU
MANU,
Mar (17th) 25 calls:
Hold without a stop while the takeover rumors play out.
Long two GRMN April (21st) 95 puts:
These were bought on Feb 21st, when GRMN GRMN,
closed beneath 95. The next day, the company reported improve-than-expected earnings, and shares jumped higher. Nosotros will remain in this position as long as the GRMN weighted put-call ratio remains on a sell point.
All stops are mental closing stops unless otherwise noted.
Send questions to: [email protected]
Lawrence 1000. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may concur positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money managing director 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 every bit an investment advisor and with the CFTC as a article trading counselor. The information in this newsletter has been carefully compiled from sources believed to exist reliable, but accurateness 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.
Source: https://www.marketwatch.com/story/the-stock-markets-rally-was-a-head-fake-and-the-smart-money-now-is-with-the-bears-4c5513b3
