A stock market that could only go up now seems to need direction

By Lawrence G. McMillan

Stay the course, but be cautious

The S&P 500 index SPX gapped higher two days in a row this week - a show of strength. (Those gaps are marked with circles on the upper right of the SPX chart below.)

There's support now for SPX at the old highs - near 6,750 - in addition to the well-tested support at 6,500 to 6,550. Those support levels are marked with red horizontal lines on the SPX chart. It is possible that a pullback toward support at 6,750 could take place - SPX shed 1% on Thursday - but it would not be a game changer if it did. This market seems to be strong enough that it may not need such a pullback to "refuel."

Mind the gaps

Now, about those S&P 500 chart gaps: Some analysts believe most gaps need to be filled, and so a pullback toward support at 6,750 would do that. (Conversely, there are some obvious gaps that never get filled; witness the one back in April, also circled on the below chart.) What is almost comical, though, is the interpretations of two breakout gaps to new highs. Some view that as a sign of strength; to others, it's a sign of exhaustion. Frankly, you can probably prove whatever you want to as far as gaps are concerned. What is the important thing now is the 6,750 support level. If that is broken, it will be a large negative, and if support at 6,500 were broken, sellers would surely flood in.

Despite the market's strength and the positive nature of the SPX chart, some indicators are showing weakness. So far, they have had little to no effect, but market tops can be "rounding" affairs with an accumulation of sell signals before a break occurs - as opposed to market bottoms, which can be sudden and V-shaped, such as the one back in April. To that end, SPX has not risen far enough to reach the +4<SIGMA> "modified Bollinger band," so the McMillan volatility band (MVB) sell signal is still in place.

The equity-only put-call ratios curled upward and began to rise a little more than a week ago. That is normally a sell signal for the broad stock market, especially when these signals come from such a low level on their chart. But these sell signals have not been borne out with lower SPX prices, and now the put-call ratios are turning lower again. The computer programs we use to analyze these ratio charts continue to "say" that sell signals are in effect, but the look of it raises questions - marked by the question marks on the charts below.

Another internal indicator - market breadth - has been struggling to stay positive, and certainly it is not as optimistic as the SPX chart. On the breakout itself by SPX, breadth was positive for a few days, and that was encouraging. However, over the past two days, breadth has weakened considerably, and the NYSE-based breadth oscillator is back to a sell signal, while the "stocks only" breadth oscillator is teetering on the brink of a new sell signal.

The market breadth I am referring to here is the "traditional" breadth: the daily number of advancing issues minus the number of declining issues. Another type of breadth has been much more positive and in tune with the market: cumulative volume breadth (CVB), the daily accumulated total of volume on advancing stocks minus volume on declining stocks. CVB has been hitting all-time highs with some regularity, just like SPX. This past week, CVB made an all-time high on Oct. 24 and Oct. 27. This is strong confirmation of the new highs being made by SPX.

Realized volatility, in the form of the 20-day historical volatility of SPX (HV20), has remained elevated ever since the market's last "tariff tantrum" on Oct. 10. This is a negative for stocks, too, in that a rise in volatility is generally not good for stock prices.

Implied volatility VIX had its moment, exploding to 29 in the first half of October. As dire as that seemed to be - and has been in the past - it amounted to nothing this time. VIX is back to about 17 now, almost as if nothing had happened. As a result, there are two buy signals in effect for the broad stock market: the "spike peak" buy signal (green "B" on the accompanying VIX chart) and the trend of VIX buy signal (pink "B" on the chart). As long as VIX remains below its 200-day moving average (currently just above 19), these buy signals will remain in effect.

The construct of volatility derivatives is back to a fully bullish position for stocks as well. The term structures of both the VIX futures and of the Cboe volatility indices continue to slope upwards. Moreover, there is a relatively large premium on the VIX futures once again. So, despite the negativity associated with an inversion in the term structure during the week of Oct. 17, the market has recovered.

We remain overall bullish, in line with the SPX chart, but will continue to trade all confirmed signals when they appear. Continue to roll deeply in-the-money positions.

Earnings spotlight

Several important earnings reports are due next week, and while it's too early to price the straddles, one can observe the median move over the past 10 earnings reports:

Palantir Technologies( PLTR): 17.8% of the stock price. If the straddle can be bought cheaper than that, there is an edge in favor of the straddle buy. (Earnings due Nov. 3 after the close of trading.)

Uber Technologies (UBER): 5.7% of the stock price. (Earnings due Nov. 4 before the market opens.)

Qualcomm (QCOM): 6.8% of the stock price. (Earnings due Nov. 5 after the close.)

DraftKings (DKNG): 4.4% of the stock price (Earnings due Nov. 6 after the close.)

New recommendation: ProShares Short VIX Short-Term Futures ETF (SVXY)

When the premium is large on the VIX futures, the ProShares Short VIX Short-Term Futures ETF SVXY rises in value. The reason is that this ETF is short the actual VIX futures. When there is a large premium on those futures, there is "time decay" as time passes, and the futures lose value, all else being equal. Of course, a rising VIX would cause SVXY to fall in value even if the futures retained a premium. Generally, though, when the futures premium is large, it can be beneficial to own SVXY or buy calls on it.

Buy 4 SVXY (Nov. 21) 50 calls in line with the market

We compute a weighted futures premium composite, and we call that calculation VOLFUTA. It currently stands at 2.30. This trade would be stopped out if it were to fall to 0.50 or less. We will update its value weekly in this report.

New recommendation: Whirlpool (WHR)

There is a new weighted put-call-ratio buy signal in Whirlpool (WHR). The company reported earnings this week and the stock enjoyed a brief rally, which has mostly dissipated. Regardless, the previous put-call-ratio buy signal from a roughly equivalent level last June worked out well, so we are recommending this one now - although we are putting a condition on it.

If WHR closes above 75, then buy 2 WHR (Dec. 19) 75 calls in line with the market.

Follow-up action:

All stops are mental closing stops unless otherwise noted.

We are using a standard rolling procedure for our SPDR S&P 500 ETF Trust (SPY) 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.

Also, for outright long options, roll if they become 8 points in-the-money.

Long 2 APH (APH) (Nov. 21) 130 calls: The stock is making new highs. Raise the trailing closing stop for APH to 128 for these calls.

Long 1 TSEM (TSEM) (Nov. 17) 75 call and short 1 TSEM (Nov. 21) 85 call: Raise the trailing, closing stop to 72 for this TSEM spread. Roll the entire spread up 10 points if TSEM trades at 85.

Long expiring 1 SPY (Oct. 31) 687 call and sell 1 SPY (Oct. 31) 702 call: The spread was rolled up when SPY traded at 687 on Oct. 28. Now, roll to the following: Buy 1 SPY (Nov. 21) 685 call and sell 1 SPY (Nov. 21) 705 call. We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Long 4 ATAI (ATAI) (Nov. 21) 6 calls: Use a trailing closing stop at 5.20 for these calls.

Long 2 NKE (NKE) (Nov. 21) 72.5 puts: We will hold these as long as the weighted put-call ratio for NKE is on a sell signal. Roll down to the NKE (Nov. 21) 65 puts.

Long 1 SPY (Nov. 21) 665 put and short 1 SPY (Nov. 21) 615 put: This is the position based on the MVB sell signal. Continue to hold until SPX trades at either of the +/-4<SIGMA> bands.

Long 2 BXP (BXP) (Jan. 16) 72.5 puts: We will hold this position as long as the weighted put-call ratio for BXP remains on a sell signal.

Long 400 BEEM (BEEM) common: Use a trailing, closing stop at 2.75 for this position.

Long 1 SPY (Nov. 28) 685 call and short 1 SPY (Nov. 28) 700 call: This is the position based on the most recent VIX "spike peak" buy signal. Stop out if VIX closes above 28.99 on any day. Otherwise, we will hold for 22 trading days. The original spread was rolled up when SPY traded at 685 on Oct. 28.

Long 2 BSX (BSX) (Dec. 19) 100 calls: We will hold these calls as long as the weighted put-call ratio for BSX remains on a buy signal.

All stops are mental closing stops unless otherwise noted.

Send questions to: lmcmillan@optionstrategist.com.

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 book, "Options as a Strategic Investment." www.optionstrategist.com.

By Lawrence G. McMillan

The S&P 500 can climb a 'wall of worry' - if it stays above 6,500

The S&P 500 index SPX had a violent and negative reaction to the threat of 100% tariffs on China - a "tariff tantrum" - and its aftermath is still affecting the market. Volatility is clearly much higher, so there has been some change in the marketplace. But there is strong SPX support in the 6,500 to 6,550 area, and that is the only support line I've drawn on the accompanying SPX. If 6,500 is violated, then a much more bearish scenario unfolds.

The U.S. stock market's sharp drop on Oct. 10 generated a new McMillan volatility band (MVB) sell signal (marked with a green "S" on the chart). That market drop also increased realized volatility, so the bands have spread wide apart - meaning that the MVB signal will likely not be hitting either of its +/-4<SIGMA> bands anytime soon.

Equity-only put-call ratios are now in a mixed state. The market selloff caused both ratios to rise a bit. But the standard ratio is now making new lows and so it remains on a buy signal. The weighted ratio has risen and has not fallen back to new lows, so it is on a sell signal. I would prefer that these two ratios are in agreement before taking a trade based on them. The computer analysis programs rate both ratios as being on sell signals; I prefer to wait for visual confirmation from the standard ratio.

Market breadth had been poor heading into the Oct. 10 decline, and that sent both breadth oscillators plunging into deeply oversold territory. This week, conditions have improved, with breadth registering three straight positive days. That has been enough to generate buy signals from both breadth oscillators, and those have been confirmed with two-day closes.

Cumulative volume breadth (CVB) has recovered quickly and has made all-time highs on each of the last two days. This is in "stocks only" terms. It is a little bit disconcerting that the NYSE-based CVB has not made a new high. In any case, this is a positive sign for SPX, since when CVB makes a new all-time high, SPX normally follows to a new high of its own.

New lows did outnumber new highs on Oct. 10, but not on any other day. So, this indicator continues to remain on the buy signal that was first generated last June. It would take two consecutive days on which new lows outnumber new highs on the NYSE in order to stop out this buy signal.

Realized volatility, in the form of the 20-day historical volatility of SPX (HV20) exploded this week, with the violent downside-upside action. HV20 had been as low as 6%, and it jumped to 13% this week. An increase in volatility is generally not good for stocks, so this is a new sell signal.

Implied volatility VIX has jumped higher as well. VIX immediately went into "spiking" mode on Oct. 10, reaching a peak of 22.44 that day. It then fell back and closed at 19.03 on Oct. 13. That generated a new "spike peak" buy signal (green "B" on the VIX chart). The stop for the "spike peak" buy signal is a VIX close above 22.44. Otherwise, this position will be held for 22 trading days - about a calendar month.

Meanwhile, the increase in VIX has caused it to close above its 200-day moving average for two consecutive days (the second of which was Oct. 15), and so that stops out the previous trend of VIX buy signal for stocks (which had been in place since late June). This is marked with the pink notes at the bottom of the VIX chart. This doesn't generate a sell signal -that won't occur until the 20-day moving average of VIX crosses above the 200-day MA.

The construct of volatility derivatives has remained bullish throughout this past week, although some of its components have weakened a bit. The term structures of both the VIX futures and of the Cboe volatility indices have continued to slope upwards. That is bullish for stocks. However, the premium on the VIX futures has diminished greatly, and that is a more bearish development. Our weighted VIX futures premium calculation has fallen to "warning" levels. The real warning would come, though, if Oct. VIX futures began to trade at a higher price than November VIX futures. So far, that has not happened.

In summary, we are still giving this bull market the benefit of the doubt as long as SPX continues to close above 6,500. Any close below would be a big problem. Meanwhile, we are taking new signals as they occur, and those are mixed (although since the new HV20 sell signal more or less offsets the new breadth-oscillator buy signal, we are not taking a position in either one). Finally, be sure to roll deeply in-the-money options when they arise.

New recommendation: VIX "spike peak" buy signal

On Oct. 13, VIX closed more than 3.0 points below its high of Oct. 10. That confirms a new "spike peak" buy signal for the stock market.

Buy 1 SPY SPY (Nov. 21) at-the-money call and sell 1 SPY (Nov. 21) call with a striking price 20 points higher.

Stop out if VIX closes above 22.44 on any day. Otherwise, we will hold for 22 trading days.

New recommendation: Beam Global (BEEM)

This stock has a similar technical pattern to recent low-priced stocks that we've traded (ATAI, OPEN and BIF, to name a few). With Beam Global (BEEM), the options are expensive and the option markets are wide, so we're going to recommend a stock purchase. If the options become more liquid, we can always roll the stock into a long call position.

Buy 400 shares of BEEM common stock in line with the market.

Use a trailing, close stop at $2.75 for this position.

Follow-up action:

All stops are mental closing stops unless otherwise noted.

We are using a "standard" rolling procedure for our SPDR S&P 500 ETF Trust (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.

Also, for outright long options, roll if they become 8 points in-the-money.

Long 2 expiring APH (APH) (Oct. 17) 120 calls: Roll to the APH (Nov. 21) 130 calls and begin using a trailing closing stop at 123.

Long 1 expiring TSEM (TSEM) (Oct. 17) 75 call: These November calls are very expensive, so we are going to roll into a call bull spread. Sell this expiring call and also: Buy 1 TSEM (Nov. 21) 75 call and sell 1 TSEM (Nov. 21) 85 call.

Long 1 SPY (Oct. 31) 672 call and short 1 SPY (Oct. 31) 687 call: This position was the trend of VIX buy signal. It was stopped out at the close on Oct. 13, since VIX had closed above 19 for two consecutive days.

Long 5 expiring SVXY SVXY (Oct. 17) 51 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Sell these calls now if you can, or let them expire, since the calculation has dropped below 0.50.

Long 1 SPY (Oct. 31) 672 call and sell 1 SPY (Oct. 10) 687 call: We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Long 4 expiring ATAI (ATAI) (Oct. 17) 4 calls: roll to the ATAI (Nov. 21) 6 calls; raise the stop to 5.10.

Long 2 expiring SPLG SPLG (Oct. 17) 79 calls and long 2 SPLG (Oct. 17) 76 puts: We rolled the calls up once, but after that there was no follow-through. Sell these options if you can and do not replace them.

Long 1 GLD (Nov. 21) 370 call and short 1 GLD (Nov. 21) 385 call: When GLD GLD traded at the higher strike (370) on Oct. 8, this position was rolled up for the second time. Raise the closing, trailing stop to 368 for this spread.

Long 2 NKE Nov (21st) 72.5 puts: We will hold these as long as the weighted put-call ratio for NKE (NKE) futures is on a sell signal.

Long 6 expiring BITF (BITF) (Oct. 17) 3 calls: roll to the BITF (Nov. 21) 5.5 calls. Raise the trailing stop to 4.60.

Long 2 expiring FTNT (FTNT)Oct (17th) 80 calls: Sell these calls and do not replace them, since the put-call ratio has rolled over to a sell signal.

Long 1 expiring SPY (Oct. 17) 656 put: This position is held in line with the breadth-oscillator sell signals. Since the breadth oscillators have rolled over a buy signal, sell this put and do not replace it.

Long 1 ASTS (Nov. 21) 80 call and short 1 ASTS (Nov. 21) 100 call: ASTS (ASTS) traded at 100 on Oct. 16; this position should again be rolled up 20 points on each strike. Raise the trailing closing stop to 72.

Long 10 CANE CANE (Nov. 21) 10 calls: We will hold as long as the put-call ratio for sugar futures remains on a buy signal.

Long 1 SPY (Nov. 21) 665 put and short 1 SPY (Nov. 21) 615 put: This is the position based on the MVB sell signal. It was confirmed on Oct. 13, when SPX fell below 6,680. Continue to hold until SPX touches either of the +/-4<SIGMA> bands.

Long 2 BXP (Jan. 16) 72.5 puts: We will hold this position as long as the weighted put-call ratio for BXP (BXP) remains on a sell signal.

All stops are mental closing stops unless otherwise noted.

Send questions to: lmcmillan@optionstrategist.com.

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 "Options as a Strategic Investment." www.optionstrategist.com

(c)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.

-Lawrence G. McMillan

By Lawrence G. McMillan

The S&P 500 Index (SPX) didn't fight the Fed after the U.S. central bank lowered interest rates by a quarter-point on Wednesday. You would have thought that was baked into the market, given its rise into the announcement. But buyers have stepped up.

There are several SPX SPX support levels, all marked with horizontal red lines on the accompanying chart: 6,500 (the August high); 6,340-6,360 (the August lows), and 6,200 (the July low). At this point, any move below 6,500 would be somewhat disappointing to investors, but it wouldn't necessarily be the start of a bear market.

Most of our indicators, but not all, have followed along with the bullishness of the SPX chart. One that has not is the McMillan volatility band (MVB) sell signal, marked with a green "S" on the SPX chart. It would be stopped out if SPX closes above the +4<SIGMA> band, which it may do as soon as today.

Equity-only put-call ratios continue to decline, and that is bullish for stocks. They will remain on their buy signals until they roll over and begin to trend higher. The computer programs that we use to analyze these charts are getting "itchy" - they want to call sell signals because the ratios are so low on their charts (a reversion to the mean would generate a sell signal, in other words). But we want to see visual confirmation of the ratios' rise before acting.

Market breadth continues to be something of a problem for stocks. Breadth has been flat to negative for the past four trading days, and our breadth oscillators are on sell signals. That might change if the market rips to the upside from here, but so far breadth has not expanded in the way that it normally does, with SPX trading at new all-time highs.

However, cumulative volume breadth (CVB) has continued to make new all-time highs. CVB is merely the cumulative running total of daily volume on advancing stocks minus daily volume on declining stocks. The fact that this is making new highs - both in "stocks only" terms as well as NYSE terms - is positive confirmation of SPX making new all-time highs.

CVB has continually been rising along with SPX, even though simple breadth statistics have lagged behind. To illustrate why this happens, consider this simple example. Recently Nvidia was up on the day, trading 125 million shares, and Nike was down, trading 10 million shares. So simple breadth is zero - one up and one down. But volume breadth was 115 million shares to the advancing side (125 minus 10). So, in a broad sense, institutions and traders have been buying a lot more of the advancing stocks, even though those are not a large number of the overall set of stocks.

New highs on the NYSE continue to easily outpace the number of new lows, so this indicator remains bullish for the broad market. This buy signal would be terminated if new lows on the NYSE were to outnumber new highs for two consecutive days.

Realized volatility is the only other remaining sell signal that we have in place, and - like the MVB sell signal mentioned above - it is on the verge of being stopped out. The 20-day historical volatility of SPX (HV20) has fallen to 9%. If it falls to 8%, this sell signal will be stopped out.

Implied volatility indicators have remained bullish for the stock market. VIX VIX edged a little higher as the FOMC meeting approached, but not a lot. Now it is back near 15, and so the trend of VIX buy signal (for stocks) remains in place. That will continue to be the case until VIX closes above its 200-day moving average (currently at 19) for two consecutive days. There is no "spike peak" buy signal in place at this time.

Finally, the construct of volatility derivatives remains bullish for stocks, too. The term structures of the VIX futures and of the Cboe volatility indices are sloping upwards, and the VIX futures are trading with a large premium to VIX. Those are all bullish signs for the broad market.

In summary, the SPX chart remains bullish and thus that is our main impetus. We will add positions in line with any new signals that appear. Also, continue to roll deeply in-the-money calls up to higher strikes.

New recommendation: Bitfarms (BITF)

This is a very speculative, low-priced bitcoin-related stock. Option and stock volume are exploding and their patterns are extremely bullish. We recently bought BITF (BITF) after seeing similar technical patterns in ATAI (ATAI) and OPEN (OPEN), and those have worked out - so we are going to use the same approach here.

Buy 6 BITF (Oct. 17) 3 calls at a price of 1.00 or less.

Note: there are options with the base symbol BITF1, which represent 2.52 times BITF. Do not buy these. Buy the "regular" BITF calls. Stop out if BITF closes below $2.25.

New recommendation: Fortinet (FTNT)

There is a new weighted put-call ratio buy signal in FTNT (FTNT).

If FTNT closes above $82, then buy 2 FTNT Oct (17th) 80 calls in line with the market.

If bought, we will continue to hold as long as the put-call ratio for FTNT is on a buy signal.

Earnings to note

FedEx (FDX) (FDX) reports earnings after the close today. The at-the-money straddle was recently priced at 18 points, or a move of 7.9%. While that seems like a lot, FDX has normally moved even more after earnings are reported - 7.9% exceeds just four of the past 10 post-earnings moves in FDX. So whille it's close, buying this straddle doesn't seem to have a strong statistical chance of being profitable.

Micron Technology (MU) (MU) is due to report earnings after the close on Tuesday, Sept. 23. Currently, the at-the-money straddle is priced at 11% of the stock price. That is relatively expensive, as only three of the past 10 post-earnings moves have been greater than that. However, with AI-related technology companies, there is always the chance of an Oracle-like explosion.

Jabil Inc. (JBL) (JBL) is reporting earnings after the close on Thursday, Sept. 25. These straddles are expensive, with the projected move being 11.6%. As it turns out, though, JBL often does make sizeable moves after its earnings report, and so 11.6% is cheaper than four of the past 10 post-earnings moves. In fact, if the straddle cheapens just a bit next week, and could be bought for 11.3% of the stock price, then that would be cheaper than five out of 10 - and a potentially interesting straddle buy.

Follow-up actions:

All stops are mental closing stops unless otherwise noted.

We are using a standard rolling procedure for our SPY 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.

Also, for outright long options, roll if they become 8 points in-the-money.

Long 2 expiring APH (Sept. 19) 120 calls: roll to the APH (Oct. 17) 120 calls. There is no longer a trailing stop here, since this APH (APH) position has been rolled up several times.

Long 1 expiring TSEM (Sept. 19) 60 call: roll to the TSEM (Oct. 17) 67.5 calls. Continue to hold TSEM (TSEM) without a stop.

Long 1 SPY (Sept. 26) 645 call and short 1 SPY (Sep. 26) 665 call: This position is the trend of VIX buy signal. We are going to roll now, because this spread expires next week: Sell the spread you own and buy the following: Buy 1 SPY (Oct. 10) 660 call and sell 1 SPY (Oct. 10) 675 call. Stop out if VIX closes above 19 for two consecutive days.

Long 5 expiring SVXY SVXY (Sept. 19) 47 calls: roll to the SVXY (Oct. 17) 51 calls. We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 2.06. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.

Long 1 expiring SPY (Sept. 19) 647 call and short 1 SPY (Sept. 19) 660 call: Roll to the SPY (Oct. 17) 660-675 call bull spread (i.e., buy the 660 call and sell the 675 call). We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Long 4 expiring ATAI (Sept. 19) 2.5 calls: Roll to the ATAI (Oct. 17) 4 calls. The stop remains at 4.20.

Long 5 OPEN (Oct. 17) 10 calls: These calls were rolled up on Sept. 11. Stop out if OPEN closes below $7.20 on any day.

Long 4 XLF (Nov. 21) 53 calls: We will hold this position as long as the weighted put-call ratio of XLF XLF remains on a buy signal.

Long 1 SPY (Sept. 26) 636 put: We rolled into this put last week. This is based on the breadth oscillator sell signals. As noted in the market commentary above, the breadth oscillators have not been able to sustain either a buy or a sell signal.

Long 4 LUV (Oct. 17) 32.5 calls: As usual, we will hold these calls as long as the put-call ratio chart for LUV (LUV) is on a buy signal.

Long 2 SPLG (Oct. 17) 76 straddles: Initially, we will hold without a stop, but we intend to risk a maximum of about half the straddle price. Meanwhile, if the underlying trades at either three points higher or three points lower, then roll that side. For example, if SPLG SPLG trades up to 79, then roll the Oct. 76 calls up to the Oct. 79 calls; or if it trades down to 73, then roll the puts down.

Long 1 GLD (Nov. 21) 326 call and short 1 GLD (Nov. 21) 343 call: Roll both sides up 10 points now. Meanwhile, we will hold a long position as long as the weighted put-call ratio for GLD GLD remains on a buy signal.

Long 1 NVDA (Nov. 21) 170 put and short 1 NVDA (Nov. 21) 145 put: We will hold this position as long as the weighted put-call ratio for NVDA (NVDA) remains on a sell signal.

Long 10 CORN Nov (21st) 17 calls: These were bought on Sept. 16, when CORN CORN closed above $17.75. We will hold these as long as the weighted put-call ratio for Corn (C00) futures is on a buy signal.

By Lawrence G. McMillan

The S&P 500 looks strong - but at these levels, it's wise to be wary

The S&P 500 index SPX chart is strong and the market internals - while overbought in some cases - generally remain positive. There is now resistance at 6,300, while several support areas are evident: 6,200 (this week's low); the previous highs at 6,150; the gap at 6,020 to 6,060; and down to 5,920. A drop below 5,920 would no longer be bullish.

A full McMillan volatility band (MVB) sell signal has occurred. (It is marked as a green "S" on the SPX chart above.) The target for this trade is for SPX to trade at the -4<SIGMA> band, which is currently at 6,030 and rising rapidly. The trade would be stopped out if SPX were to close back above the +4<SIGMA> band, which is at 6,300 and moving sideways.

Equity-only put-call ratios continue to fall - bullish for the stock market. They are low on their charts, meaning that they are in overbought territory, but unless they roll over and begin to trend higher, they will remain on buy signals.

Market breadth has mostly been positive, except for one day that sent the NYSE-based breadth oscillator into a sell signal. But the "stocks only" breadth oscillator did not follow suit. So, for now, these two are not in agreement. If they both generate sell signals, then we would take a position. Otherwise, we're just observing.

New highs on the NYSE have continued to outpace new lows, so this indicator remains bullish for stocks. It would be stopped out if new lows were to exceed new highs for two consecutive days on the NYSE.

Realized volatility continues to decline, with SPX at or near all-time highs. The 20-day historical volatility of SPX (HV20) is now down to 9%. If it falls to 8%, that would be an overbought condition that would eventually lead to a sell signal.

VIX tends to make a low in July and then rises later.

Meanwhile, implied volatility - in the form of VIX VIX - remains relatively subdued. It has hovered near 17.0, although there was a probe up to 19.0 this week. Still, VIX remains below its 200-day moving average, which is important - for it means that both the "spike peak" and "trend of VIX" buy signals are still in place. VIX tends to make a low in July and then rises later. The first step would be a close above the 200-day MA.

The construct of volatility derivatives remains bullish for stocks. The August VIX futures are now the front month, since the July futures expired. The term structures of both the VIX futures and of the Cboe volatility indices slope upwards. Furthermore, there is a strong premium in the VIX futures. We are watching the relationship between the August and September VIX futures. If August should trade above September, that would be bearish. Currently, there is no indication of that happening.

In summary, we remain bullish, but vigilant. The first confirmed sell signal (MVB) has appeared and there are other overbought conditions. We will trade confirmed sell signals. Meanwhile, continue to roll deeply in-the-money calls up to higher strikes.

New recommendation: MVB sell signal

There is a new McMillan volatility band (MVB) sell signal.

Buy 1 SPY SPY (Sept. 19) 625 put and sell 1 SPY (Sept. 19) 575 put in line with the market.

This signal has a target of the -4<SIGMA> band, which is currently at 6,030 and rising. It would be stopped out if SPX were to close above the +4<SIGMA> band.

New recommendation: Docusign (DOCU)

A weighted put-call-ratio buy signal was generated last week in DOCU (DOCU), which is attempting to recover from its most recent negative earnings report. A move above $80 would be positive confirmation of this buy signal. The conditional recommendation was not filled since the condition was not met. The recommendation remains open again for this week:

Conditional call buy in DOCU: If DOCU closes above $80, then buy 3 DOCU (Aug. 15) 80 calls in line with the market.

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.

Also, for outright long options, roll if they become 8 points in-the-money.

Long 2 expiring APH (APH) (July 18) 95 calls: Roll to the APH (Aug. 15) 100 calls and raise the closing stop to 95. Roll up again at 115.

Long 1 expiring TSEM (TSEM) (July 18) 42 call: Roll to the TSEM (Aug. 15) 45 call; roll up again at 50.

Long 1 SPY (Sept. 19) 585 call and short 1 SPY (Sept. 19) 635 call: This is the position based on the differential between implied and historical volatility. Raise the trailing stop; stop out if SPY closes below 615.

Long 2 expiring SPY (July 18) 621 calls: This position was bought in line with the cumulative volume breadth (CVB) buy signal. That signal is still in effect. CVB made an all-time high on July 14 and July 16. The target was for SPY to eventually make a new all-time high, which it has done. Roll to the SPY (Aug. 1) 624 calls. Hold with a trailing, closing stop at 615.

Long 6 expiring DOUG (DOUG) (July 18) 2.5 calls: Stock volume remains strong here, but option volume does not. Sell these calls and do not replace them.

Long 1 expiring SPY (July 18) 601 call and short 1 SPY (July 18) 621 call: This position is the "trend of VIX" buy signal. Stop out if VIX closes above 21.0 for two consecutive days. Sell the spread and replace it with the following: Buy 1 SPY (Aug. 15) 625 call and sell 1 SPY (Aug. 15) 640 call.

Long 4 expiring BKR (BKR) (July 18) 39 calls: The put-call ratio has rolled over to a sell signal. Sell these calls and do not replace them.

Long 1 SPY (Aug. 1) 610 call and short 1 SPY (Aug. 1) 630 call: This is the "spike peak" buy signal of June 24. Stop out if VIX closes above 22.51. Otherwise, we will hold for 22 trading days.

Long 5 expiring SVXY SVXY (July 18) 42.5 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 2.43. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly. Roll to the SVXY (Aug. 15) 44 calls.

Long 4 expiring CORZ (CORZ) (July 18) 17 calls: Even though the spread is wide here, we are not going to pursue this any further. Do not replace these calls.

Long 1 SPY (Aug. 29) 625 call and short 1 SPY (Aug. 29) 645 call: We will hold until new lows outnumber new highs for two consecutive days on the NYSE.

All stops are mental closing stops unless otherwise noted.

Send questions to: lmcmillan@optionstrategist.com.

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 book, Options As A Strategic Investment. www.optionstrategist.com

(c)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.

-Lawrence G. McMillan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

By Steve Goldstein

Scott Rubner, a former Goldman Sachs tactical strategist now at Citadel Securities, said it's too soon to fade the stock market given factors including corporate stock buybacks - but it's getting late.

In his first published note at Citadel, Rubner puts the current market rally in inning seven of nine.

"For the next one month, I am bullish on U.S. equities led by fundamental earnings and positive flow dynamics," he said. Companies have a low bar in earnings to beat, particularly with a weaker dollar providing positive translation effects for tech companies.

July seasonals, he adds, are exceptional for U.S. stocks. Since 1928, July is the best performing month of the year for the S&P 500 SPX, while September is the worst.

August is one of the best months of the year for corporate share repurchases, he notes. By market cap, most of the S&P 500 will have reported results by Aug. 1, so they can resume buying stock.

The decline in volatility VIX also is a factor helping stocks. "Volatility is no longer the coach directing plays from the sidelines, it is the star quarterback in the middle of huddle," he says.

But he's wary about the autumn. "During mid-August, I am recommending investors add equity index hedges for September month-end. This may take advantage of lower implied volatility to hedge any macro events. September 2nd (post Labor Day) typically marks the highest point for the month over the past 100 years," says Rubner.

The S&P 500, up 7% this year, closed Wednesday close to a record high, as the Nasdaq Composite COMP did notch a new record.

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.