Sell indicators are popping up everywhere in the inventory market

First of all, the chart of SPX remains to be in a downtrend. The patterns of decrease highs and decrease lows has not been damaged. The downtrend line is present at 4430 and falling. Second, there may be nonetheless the hole on the SPX chart; till that’s crammed by SPX rising above 4401.60, it’s a destructive issue, too. Finally, the market stalled out for six consecutive days within the basic space of 4380 over the previous week, in order that represents near-term resistance.

Not every little thing is destructive concerning the SPX chart, although, because the current McMillan Volatility Band (MVB) purchase sign (inexperienced “B” on chart) remains to be in place. 

To summarize the SPX chart, it’s nonetheless a destructive sample till no less than the hole is crammed at 4401.60, and ideally the downtrend line is damaged. So, a “core” bearish place is in place till these issues happen. Meanwhile, a drop under 4200 could be extraordinarily destructive.

Equity-only put-call ratios have been considerably cut up of their outlook lately. The normal equity-only put-call ratio rolled over to a purchase sign a couple of week in the past, and one can see that it’s nonetheless declining from its current peak. However, the weighted ratio and the full ratio didn’t generate purchase alerts and at the moment are making new relative highs on their charts. Hence, they continue to be on promote alerts and can achieve this till they roll over and start to development downward.

Market breadth tried to enhance after SPX bounced off the 4200 degree in early October. In reality, purchase alerts have been registered by the breadth oscillators on October 10^th, solely to be negated just a few days later. So, the whipsaw syndrome that plagued these oscillator alerts earlier within the 12 months remains to be in proof. Now, one other purchase sign is trying to arrange, however it’s tentative and we aren’t going to commerce it at the moment.

New Lows on the NYSE have maintained clear dominance over New Highs previously week. In reality, there have been greater than 100 New Lows on daily basis within the final 5 buying and selling days, and there have been greater than 250 New Lows yesterday. This indicator stays on a promote sign. That promote sign could be stopped out if New Highs on the NYSE outnumber New Lows for 2 consecutive days.

The volatility advanced is displaying combined alerts as effectively. First, one other VIX
VIX

VX00,
+1.50%
“spike peak” purchase sign was generated this previous week. It is marked in orange on the VIX chart under. We don’t commerce the overlapping alerts, which this one is, because the authentic “spike peak” purchase sign was generated earlier in October. That sign lasts for 22 buying and selling days, however it might be stopped out if VIX have been to shut above 20.88, its most up-to-date excessive “print.”  

However, there’s a destructive side of the VIX chart as effectively. A brand new development of VIX promote sign has been generated, denoted by the circle on the right-hand facet of the VIX chart. It happens when each VIX and its 20-day transferring common are above the 200-day transferring common. This is the primary such promote sign because the one in September 2022 (related circle on the left-hand facet of the chart). Currently VIX is simply a small distance above the 200-day, and I would favor extra separation earlier than declaring this to be a full-fledged intermediate-term promote sign, however it’s actually starting to appear to be one.

The assemble of volatility derivatives stays modestly bullish for shares, because the time period constructions of each the VIX futures and of the CBOE Volatility Indices proceed to slope upwards. October VIX futures expired yesterday, so November is now the entrance month. Hence the connection to look at is that between November and December VIX futures. If November begins to commerce above December, that may be a destructive warning signal, however this doesn’t look like in imminent hazard of taking place.

In abstract, we’re holding a “core” bearish place and are rolling expiring bearish positions since their promote alerts are nonetheless in place. We are, nevertheless, buying and selling different confirmed alerts round that “core” bearish place.

Market perception: October seasonal commerce

Long-time readers know that we typically commerce a positive seasonal commerce close to the top of October. But for it to arrange, a decline of three.2% will need to have occurred someday throughout October. So far that has not been the case. The most up-to-date SPX excessive was 4393.50, so a decline to 4252.90 would arrange the seasonal commerce. That remains to be doable however time is operating brief. The seasonal commerce is entered on October 27^th, so except a decline of that magnitude takes place within the subsequent week, we is not going to be buying and selling the seasonal this 12 months. We will replace the state of affairs in subsequent week’s report.

New advice: Consumer staples SPDR (XLP)

A McMillan Volatility Band (MVB) purchase sign has been issued by this ETF (sure, the MVB alerts will be utilized to any chart). It has a very good monitor file of purchase alerts, so we’re going to act on this sign.

IF XLP closes above 68.04, then purchase 4 XLP Dec (1^st) 68 calls in keeping with the market.

XLP: 67.94

If purchased, the place could be stopped out if XLP closed under its -4σ “modified Bollinger Band.”  We will replace the state of affairs weekly. The goal is for XLP to commerce on the higher +4σ Band, which is presently at 70.50, however which might reverse upward if XLP begins to rally. See the same purchase sign a couple of 12 months in the past on the XLP chart.

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 your complete 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 hold the space between the strikes the identical except in any other case instructed. 

Long 8 expiring CRON
CRON,
-1.14%
Oct (20^th) 2 calls: Sell these calls and don’t exchange them. The takeover rumors should be in place, however the lack of optimistic motion leads us to consider that we must always exit.

Long 1 expiring SPY
SPY
Oct (20^th) 428 put: Bought in keeping with the equity-only put-call ratio promote alerts. We are going to carry a put till the weighted ratio rolls over to a purchase. Since the weighted ratio remains to be on a promote, roll this put out to the Nov (10^th) 28 put. Roll down each time this put turns into no less than 8 factors in-the-money. In essence, that is our “core” bearish place.

Long 2 expiring EQR
EQR,
-1.73%
Oct (20^th) 60 places: Continue to carry so long as the weighted put-call ratio for EQR stays on a promote sign. Roll to the Nov (17^th) 60 places.

Long 3 X
X,
-0.56%
Oct (13^th) 31 calls: We didn’t handle this place final week, when it expired, so the belief is made that the calls have been exercised since they have been in-the-money at expiration. Sell the inventory now, to shut the place.

Long 1 expiring SPY Oct (20^th) 428 put and Short 1 SPY Oct (20^th) 408 put: Established in keeping with the “New Highs vs. New Lows” promote sign. Stop out if New Highs outnumber New Lows on the NYSE for 2 consecutive days. Since this sign has not been stopped out, promote the unfold that’s owned, and purchase 1 SPY Nov (10^th) 428 put to exchange it.

Long 3 CHEF
CHEF,
-3.23%
Nov (17^th) 20 places: Lower the trailing cease to twenty.20.

Long 2 DLR
DLR,
+0.15%
Nov (10^th) 118 places: Hold these places so long as the DLR weighted put-call ratio is on a promote sign.

Long 1 SPY Nov (17^th) 430 name and Short 1 SPY Nov (17^th) 445 name: This place was purchased in keeping with the VIX “spike peak” purchase sign of October 6^th. Hold for 22 buying and selling days. Stop out if VIX closes above 20.88.

Long 3 XLE
XLE
Nov (17^th) 86 places:  Hold so long as the weighted put-call ratio of XLE stays on a promote sign.

Long 1 SPY Nov (17^th) 434 name brief 1 SPY Nov (17^th) 452 name: This unfold was purchased in keeping with the CBOE Equity-only put-call ratio purchase sign. We are holding and not using a cease initially. Roll the entire unfold up if the lengthy facet turns into no less than 8 factors in-the-money.

Long 3 ES
ES,
-0.74%
Nov (17^th) 60 calls: Hhold this place so long as the weighted put-call ratio chart for ES stays on a purchase sign.

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 guide, 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 usually are 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.