The inventory market, as measured by the S&P 500 Index
SPX,
decisively broke out over 4400 a few weeks in the past. Since the October 27th low, the U.S. benchmark index has rallied greater than 450 factors. That qualifies it as being overbought, however “overbought does not mean sell.”
We don’t have any confirmed promote alerts but, however they may not be far off. SPX is approaching its 2023 yearly highs, simply above 4600. That would possibly show to be a resistance space, however whether it is overcome, then the market will set its sights on the all-time excessive simply above 4800 (set in January 2022).
For the previous couple of weeks, SPX has been buying and selling above the +4σ “modified Bollinger Band” (mBB). On November 29th, SPX closed beneath the +3σ Band, which is a “classic” mBB promote sign. The index didn’t actually commerce down by way of the band as a lot because the bands are rising, and the +3σ band surpassed the worth of SPX. Regardless, we don’t commerce the “classic” alerts, however this can be a attainable precursor to a full-fledged McMillan Volatility Band (MVB) promote sign which we do commerce. That MVB promote sign will happen if SPX trades at 4533 or decrease. Not each “classic” sign turns into a MVB sign, although, so watch for the affirmation earlier than getting into right into a bearish place.
Equity-only put-call ratios are dropping extra quickly now. The quantity of put shopping for has decreased dramatically, and the quantity of name shopping for is rising accordingly. As lengthy as these ratios are declining, that’s bullish for the broad inventory market.
Market breadth has been simply OK. I might have anticipated it to be way more constructive whereas SPX was exploding to the upside, nevertheless it was not. However, the breadth oscillators are nonetheless on purchase alerts, though solely in modestly overbought territory. A day or two of detrimental breadth goes to generate promote alerts from these oscillators.
There have been greater than 100 New Highs on the NYSE in the future this week, however then that quantity backed off. So, this indicator stays in a impartial standing. If there are greater than 100 New Highs for 2 consecutive days on the NYSE, that will represent a purchase sign. Likewise, if there are greater than 100 New Lows for 2 consecutive days, that will be a promote sign.
The CBOE’s Volatility Index
VIX
VX00,
has declined to a brand new yearly low. In reality, that is the bottom it’s been since January 2022 — simply earlier than the market crashed within the pandemic selloff. Before one jumps to the conclusion, although, {that a} VIX this low is bearish, do not forget that VIX can stay low for lengthy intervals of time. This is merely one other overbought situation and wouldn’t turn out to be worrisome till VIX returns to “spiking” mode (a acquire of no less than 3.0 factors over any 3-day or shorter time interval, utilizing closing costs). Meanwhile, the “spike peak” purchase sign has expired profitably, and the development of VIX purchase sign remains to be in impact. The two circles on the accompanying VIX chart present the onset of the 2 most up-to-date development of VIX purchase alerts.
The assemble of volatility derivatives stays bullish in its outlook for shares. The time period buildings of the VIX futures and of the CBOE Volatility Indices proceed to slope upwards, and the VIX futures are buying and selling at wholesome premiums to VIX.
In abstract, we’re sustaining a “core” bullish place, and we’ll commerce different confirmed alerts round that.
New suggestion: Potential MVB promote sign
As famous out there commentary above, SPX has fallen beneath its +3σ “modified Bollinger Band.” That creates a “classic” mBB promote sign. But additional affirmation is required to generate a full-fledged McMillan Volatility Band (MVB) promote sign. Specifically, on this case, SPX must commerce at 4533 or decrease.
IF SPX trades at 4533 or decrease, then purchase 1 SPY Jan (19th) at-the-money put and Sell 1 SPY Jan (19th) put with a strike value 20 factors decrease.
If this place is taken, then the MVB promote sign can have a goal of the decrease -4σ Band, and it might be stopped out by an in depth above the +4σ Band. As with all of our unfold positions, this one needs to be rolled (down) if SPX trades on the decrease strike.
New put suggestion: Goldman Sachs Group (GS)
The weighted put-call ratio of GS
GS,
has generated a promote sign. The inventory appears to be having bother extending latest beneficial properties, however that alone isn’t sufficient to take a bearish place. However, if it falls beneath assist at 330 and closes the hole there, then the promote sign may be heeded.
IF GS closes beneath 329, then purchase 1 GS Jan (19th) 330 put and Sell 1 GS Jan (19th) 305 put
GS: 342.38
GS choices should not costly, so this unfold ought to price about 5 – 6 factors. If the place is taken, we’ll maintain so long as the GS weighted put-call ratio is on a promote sign.
Follow-up actions:
All stops are psychological closing stops until 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 quick strike, then roll your complete unfold. That can be roll up within the case of a call-bull unfold or roll down within the case of a bear-put unfold. Stay in the identical expiration and preserve the space between the strikes the identical until in any other case instructed.
Long 3 XLE Dec (15th) 85 places: we’ll maintain so long as the weighted put-call ratio of XLE
XLE
stays on a promote sign.
Long 1 expiring SPY
SPY
Dec (1st) 456 name: Bought in keeping with the CBOE Equity-only put-call ratio purchase sign. It has been rolled up a number of occasions. Now, roll out to the Dec (29th) 456 name. Roll the decision up if it turns into no less than 8 factors in-the-money. We are holding with out a cease for now.
Long 3 ES
ES,
Dec (15th) 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 (1st) 68 calls: roll to the Dec (29th) 70 name. The cease stays at 68.80.
Long 1 SPY Dec (8th) 457 name: This place was initially an extended straddle. It was rolled up this week from the 449 strike, when SPY traded at 457. Now, roll out to the Dec (29th) 457 name. Continue to roll the decision up if it turns into eight factors within the cash. This is, in essence, our “core” bullish place.
Long 5 AVPT
AVPT,
Dec (15th) 7 calls: The trailing closing cease stays at 7.75.
Long 2 TECH
TECH,
Jan (19th) 60 calls: We will maintain so long as weighted put-call ratio is on a purchase sign.
Long 4 KHC
KHC,
Jan (19th) 32.5 calls: We will maintain so long as weighted put-call ratio is on a purchase sign.
Long 2 IWM
IWM
Jan (19th) 178 calls: This is our post-Thanksgiving seasonal place. We will maintain with out a cease, since this can be a somewhat lengthy seasonal interval extending by way of the primary two buying and selling days of 2024. Roll up if the decision turns into six factors in-the-money (i.e., at 184).
All stops are psychological closing stops until 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 shopper accounts. He is an skilled dealer and cash supervisor and is the writer of the best-selling ebook, 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 e-newsletter has been fastidiously compiled from sources believed to be dependable, however accuracy and completeness should not 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
