The inventory market, as measured by the S&P 500 Index
SPX,
has continued to maneuver greater over the previous week — ignoring the one huge down day (70 factors) and placing that within the rearview mirror. SPX has made new 2023 highs, and the all-time highs simply above 4800 are inside shouting distance.
It appears inevitable that SPX will obtain new all-time highs early within the new 12 months (if not earlier than). The advance has been swift, not leaving a lot in the way in which of assist. The final time there was any backing and filling (which creates assist) was just under 4600, in late November and early December. In idea, a pullback in direction of that space would nonetheless go away the SPX chart interpretation as “bullish.” However, a break under the December lows at 4550 would have much more detrimental ramifications.
This week, SPX rose again above its 4σ “modified Bollinger Band” (mBB) once more. That cancels out the earlier “classic” mBB promote sign, and the entire course of of doubtless establishing a promote sign should start once more. We don’t commerce the “classic” promote alerts. Rather, we anticipate additional affirmation within the type of a McMillan Volatility Band (MVB) promote sign.
In December we now have had two “classic” promote alerts to date, however neither one grew to become an MVB promote sign. Both have been ultimately stopped out when SPX rose again above the +4σ Band. So, now we await a 3rd “classic” promote sign, and we should see if it might probably turn into a full-fledged MVB promote sign. That “classic” promote sign will happen when SPX closes under its +3σ Band. That would happen on an in depth under 4758. The +3σ Band strikes each day, in order that value of the “classic” promote sign will change tomorrow and on subsequent days. Eventually, the “classic” promote sign will happen. After it does, we are going to define the parameters for probably taking a bearish place if the MVB does certainly comply with.
Equity-only put-call ratios have each made new relative lows. That means they continue to be bullish on the inventory market. The normal ratio has been steadily declining. The weighted ratio had a short rise, throughout which the pc evaluation applications have been warning of a promote sign, however motion this week has pushed the weighted ratio to a brand new relative low as nicely. So, these ratios will stay on purchase alerts till they roll over and start to pattern upward.
Breadth has been extraordinarily robust over the previous week, and the breadth oscillators stay on purchase alerts. They are in overbought territory. In truth, the “stocks only” breadth oscillator traded at a brand new all-time excessive this week. The NYSE breadth oscillator is nowhere close to an all-time excessive. It would most likely take three days of detrimental breadth to roll these breadth oscillators over to promote alerts.
In a associated matter, cumulative quantity breadth (CVB) continues to make new all-time highs as nicely. That portends nicely for shares, and we’re holding an extended place due to it. CVB is the operating each day sum of quantity on advancing points, minus quantity on declining points. The companion indicator — cumulative breadth, which is the operating each day sum of the variety of advancing points, minus the variety of declining points — is nowhere close to its all-time excessive, set in November 2021. So, quantity has been the important thing to the rise within the final 15 months, extra so than the variety of points rising.
The variety of New Highs on the NYSE continues to dominate the variety of new lows. That retains this indicator bullish. This purchase sign will likely be stopped out if, on the NYSE, New Lows outnumber New Highs for 2 consecutive days.
VIX
VIX
VX00,
continues to hover at low ranges. Yes, there was a minor advance final week, when shares bought off sharply in someday, however that’s not an element. The pattern of VIX purchase sign stays in place. It could be stopped out if VIX have been to shut above its declining 200-day Moving Average. In addition, we might be involved if VIX have been to return to “spiking” mode (an in depth no less than 3.00 factors greater over an 3-day or shorter time interval). That hasn’t occurred, both.
The assemble of volatility derivatives stays bullish in its outlook for shares, for the reason that time period constructions of the VIX futures and of the CBOE Volatility Indices proceed to slope upward. We proceed to look at the front-month Jan VIX futures versus the Feb VIX futures to see if an inversion (Jan buying and selling above Feb) takes place. If that have been to occur, it will be a detrimental warning signal, nevertheless it doesn’t look like an issue presently.
While we’re with regards to volatility, realized volatility is coming into play. The 20-day historic volatility (HV20) of SPX had dropped virtually to 7% lately; it has begun to rise, although, and if it closes above 10%, that may be a promote sign for the inventory market. This indicator is never used, and it’s often an early warning signal of bother. So, we’re maintaining a tally of this as nicely.
The seasonally bullish Santa Claus rally continues via the second buying and selling day of the brand new 12 months. It is the third and last bullish seasonal that follows Thanksgiving. This 12 months has been one of many stronger ones for that seasonality. We will exit positions primarily based on that, on the shut of the second buying and selling day of 2024.
In abstract, we proceed to take care of a “core” bullish place due to the optimistic SPX chart. We will commerce different confirmed alerts round that. We are rolling calls up as they turn into pretty deep in-the-money — a method which brings in credit and reduces draw back danger whereas nonetheless permitting for additional upside beneficial properties.
New Recommendation: Esperion Therapeutics (ESPR): This inventory has moved greater after constructing a base for about eight months. Both choice and inventory quantity patterns are robust.
Buy 10 ESPR
ESPR,
Feb (16th) 3 calls in line with the market.
ESPR: 3.06 Feb (16th) 3 name: 0.60 bid, provided at 0.70
If purchased, cease out on an in depth under 2.25.
New suggestion: Walt Disney (DIS) Puts: There is a brand new put-call ratio promote sign in DIS
DIS,
and with the inventory breaking down under 91, there may be technical affirmation as nicely.
Buy 2 DIS June (21st) 90 places in keeping with the market.
DIS: 90.65 June (21st) 90 places: 5.40 bid, provided at 5.50
We will maintain these places so long as the weighted put-call ratio of DIS is on a promote sign.
New suggestion: Potential MVB promote sign: This suggestion was not stuffed final week, and now SPX has risen again above the +4σ Band. So, all the course of of getting to arrange a promote sign should start once more.
Follow-up motion:
All stops are psychological closing stops except in any other case famous.
We are utilizing a “standard” rolling process for our SPY spreads: in any vertical bull or bear unfold, if the underlying hits the brief strike, then roll all the unfold. That could be roll up within the case of a name bull unfold or roll down within the case of a bear put unfold. Stay in the identical expiration and maintain the space between the strikes the identical except in any other case instructed.
Long 1 expiring SPY
SPY
Dec (29th) 472 name: A diffusion was purchased in keeping with the CBOE equity-only put-call ratio purchase sign. It has been rolled up a number of occasions, with December 14th being the newest, when SPY first traded at 472. Roll to the SPY Jan (19th) at-the-money name. We are holding and not using a cease for now.
Long 2 ES
ES,
Jan (19th) 60 calls: We will maintain this place so long as the weighted put-call ratio chart for ES stays on a purchase sign.
Long 4 expiring XLP
XLP
Dec (29th) 70 calls: Roll to the Jan (19th) 72 calls. The cease stays at 70.00.
Long 1 expiring SPY Dec (29th) 473 name: This place was initially an extended straddle. It was rolled up, and the places have been bought. The calls have been rolled up once more on December 14th. Continue to roll the decision up if it turns into 8 factors ITM. Roll to the SPY Jan (19th) at-the-money name. This is, in essence, our “core” bullish place.
Long 5 AVPT
AVPT,
Jan (19th) 8 calls: The cease stays at 8.10.
Long 2 TECH
TECH,
Jan (19th) 70 calls: We will maintain so long as the weighted put-call ratio is on a purchase sign.
Long 2 IWM
IWM
Jan (19th) 196 calls: This is our post-Thanksgiving seasonal place. We will maintain and not using a cease, since it is a quite lengthy seasonal bullish interval extending via the primary two buying and selling days of 2024 (the final a part of which begins at Thursday’s shut). We have rolled the decision up 3 times, most lately on December 14th. Roll up once more if the decision turns into six factors in-the-money (i.e., at 202).
Long 1 SPY Feb (16th) 457 name and brief 1 SPY Feb (16th) 477 name: This unfold is predicated on the “New Highs vs. New Lows” purchase sign. We will cease out of this place if New Lows on the NYSE exceed New Highs for 2 consecutive buying and selling days. Otherwise, there isn’t a value cease primarily based on SPX. Roll this unfold up 20 factors on either side to the Feb (16th) 477-497 name bull unfold.
Long 4 UNM
UNM,
Mar (15th) 45 calls: We will maintain this place so long as the weighted put-call ratio of UNM stays on a purchase sign.
Long 2 SPY Jan (5th) 172 calls: This is our place to commerce the Santa Claus rally. Roll the place up if the calls turn into no less than six factors in-the-money at any time. Sell all the place on the shut of buying and selling on the second buying and selling day of 2024 — Wednesday, January 3rd.
Long 1 SPY Feb (16th) 480 name: This name was purchased in keeping with the Cumulative Volume Breadth (CVB) purchase sign. The whole premium is in danger right here, since there actually isn’t a stop-out for this commerce.
All stops are psychological closing stops except in any other case famous.
Send inquiries to: lmcmillan@optionstrategist.com.
Lawrence G. McMillan is president of McMillan Analysis, a registered funding and commodity buying and selling advisor. McMillan might maintain positions in securities advisable on this report, each personally and in consumer accounts. He is an skilled dealer and cash supervisor and is the writer of the best-selling e-book, Options as a Strategic Investment. www.optionstrategist.com
©McMillan Analysis Corporation is registered with the SEC as an funding advisor and with the CFTC as a commodity buying and selling advisor. The data on this publication has been fastidiously compiled from sources believed to be dependable, however accuracy and completeness will not be assured. The officers or administrators of McMillan Analysis Corporation, or accounts managed by such individuals might have positions within the securities advisable within the advisory.
Source web site: www.marketwatch.com
