MW Why this stock-market breakout is the real deal - and the S&P 500 still has room to run

By Lawrence G. McMillan

The market internals are strong, in stark contrast to the upside breakout in February

The S&P 500 index SPX has continued to rise, registering new all-time highs repeatedly. It appears that the current breakout to all-time highs is stronger than the failed one of last February. There is support at 6,150 (the old highs), 6,020 (the highest circled gap on the accompanying SPX chart), and 5,920. A pullback below 5,920 would negate the current upside breakout, but I don't expect that to happen.

There technically is no traditional resistance when SPX is at all-time highs, but we sometimes use the +4<SIGMA> "modified Bollinger band" as a target of sorts. SPX is above that band, so the previous McMillan volatility band $(MVB.AU)$ sell signal was stopped out for a loss.

However, what we call a "classic" sell signal is setting up. We don't trade those, though, for they have a history of whipsaws. A "classic" sell signal will occur when SPX closes below the +3<SIGMA> band. That would occur today on a close below 6,168, but that "target" moves daily. Even if that did occur, there would have to be further downside movement in order to confirm a new MVB sell signal, which we would trade.

The market internals are strong, in stark contrast to the upside breakout in February. Equity-only put-call ratios had been on a sell signal, but that has been stopped out by the fact that both ratios have moved to new relative lows - below the June lows. So, they are once again on buy signals in overbought territory. They would have to roll over and begin to trend higher in order to register new sell signals.

Breadth has been very strong since new all-time highs were reached by SPX. Thus, the breadth oscillators are on buy signals and are overbought. It is a good thing for them to be overbought when SPX is pushing into new all-time-high territory. In addition, cumulative volume breadth $(CVB.AU)$ has been very strong and has made new all-time highs on five of the last seven trading days. That is true for both "stocks only" and NYSE data. That is strong confirmation of the new all-time highs being made by SPX.

New 52-week highs on the NYSE have numbered more than 100 for five consecutive days, and thus this indicator - which had been dormant since April 23 - is on a buy signal. It will remain there until new lows outnumber new highs on the NYSE for two consecutive days.

Realized volatility has continued to fall as SPX has risen. The 20-day historical volatility of SPX (HV20) is now down to 10%. If it were to fall to 8%, sell signals would set up, but that could take some time.

Implied volatility, in the form of VIX VIX, has also declined and that presents a bullish situation. Both the VIX "spike peak" buy signal of June 24 and the trend of VIX buy signal remain in place. It would require a sharp rise in VIX to stop out either buy signal.

The construct of volatility derivatives remains bullish for stocks. The term structures slope upwards, and the VIX futures are trading at a healthy premium to VIX.

In summary, the situation is bullish. The SPX chart is bullish and so are most of the internal indicators. We will, however, trade any confirmed signal that occurs. Meanwhile, continue to roll calls that are deeply in-the-money up to higher strikes.

New recommendation: The big (volatility) short

The premium on VIX futures constantly decays as time passes. When that premium is sufficiently large, it can be profitable to own SVXY SVXY - the inverse VIX ETF - for that ETF shorts the VIX futures and thus benefits when the time decay takes place.

A new signal was generated this week, as the VIX futures premium ballooned. Since the theory is that SVXY will benefit from the time decay of the VIX futures premium, we are recommending the purchase of SVXY calls.

Buy 5 SVXY (July 18) 42.5 calls in line with the market.

We monitor the weighted VIX futures premium via a proprietary calculation. This trade would be stopped out if the futures premium declines too much. We will update the calculation weekly.

New recommendation: Core Scientific (CORZ)

CORZ (CORZ) option volume has been at unusually high levels for several days, as events play out with regards to a Wall Street Journal report that Coreweave $(CRWV)$ was in talks to acquire CORZ. No further information has been provided with regards to potential takeover price or deal terms. Stock volume patterns are very strong. There is support at 16.

I like the volume here, so it is worth a trade. However, the options are very expensive. One might consider a bull spread, but we are going with an outright long call:

Buy 4 CORZ (July 18) 17 calls in line with the market.

New recommendation: New highs vs. new lows

New highs numbered more than 100 on the NYSE on June 26 and again on June 27. So, this buy signal is finally in place.

Buy 1 SPY SPY(Aug. 29) at-the-money call and sell 1 SPY (Aug. 29) call with a striking price 20 points higher.

Use the nearest strikes if those specified in the recommendation do not exist. We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Market insight: VIX from a seasonal perspective

Periodically we publish the accompanying chart, which shows the VIX composite from 1989 through some more current date - Dec. 31, 2024, in this case. We usually update this chart annually, because it is meant to give some insight as to where VIX goes at what time of the year.

There are four distinct trends on the chart. 1) First, volatility rises from the first of the year through mid-March. 2) Then it begins a decline toward the lows of the year, which it reaches in July. For a long while, the yearly low was almost exactly at July 1, but in recent years, the lows of the chart have extended all the way through the month of July.

3) From there, VIX begins to climb toward its yearly highs, which are typically registered in October, when the stock market takes a big tumble. 4) After that, volatility declines rather sharply into year-end.

Since this is a composite chart, each individual year is going to be somewhat different than this. But it is a good roadmap as to what to expect in general.

In 2024, the yearly high was that huge spike in August, so the yearly peak occurred then, not in October. But overall, 2024 was not far from the composite "norm." For example, the 2024 lows for VIX were all throughout the June-July period.

This year's VIX data is not yet incorporated into the composite chart shown above. Obviously, the huge VIX spike peak in April is going to have some effect on the composite chart when that data is incorporated. But currently, we seem to be well on our way toward another yearly low in July.

That is often a good time to buy straddles on stocks or the broad market itself. You might think that buying calls on VIX would work too, but remember that you can't trade VIX, you can only trade VIX futures and options (which are essentially options on those futures), or ETFs that buy those futures (VXX VXX, for example). Since there is time decay in the futures premium, you are fighting an uphill battle against that decay.

Many casual observers think that August is a dull month for the market, but it really isn't. It's when volatility begins to increase and sometimes it leads to some very volatile results, such as in August 2024. So, the time to begin establishing long positions in volatility is in July, and it may be too late by August.

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 APH $(APH)$ (July 18) 95 calls: Raise the closing stop to 94. Roll up again at 105.

Long 1 TSEM (July 18) 42 call: The long calls were rolled up when TSEM $(TSEM)$ traded above $42 on May 14. Roll the calls 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 yourself out if SPY closes below 603.

Long 2 SPY (July 18) 613 calls: This position was bought in line with the cumulative volume breadth (CVB) buy signal. That signal is still in effect. CVB made a new all-time high on four of the last six trading days. The target was for SPY to eventually make a new all-time high, which it has done. Now, roll up to SPY (July 18) at-the-money calls.

Long 1 SPY (July 18) 576 put and short 1 SPY (July 18) 525 put: This spread is based on the McMillan volatility band (MVB) sell signal that took place on May 23 when SPX traded below 5,795. The position is stopped out since SPX closed above the +4<SIGMA> band. Exit this spread now. A new MVB sell signal may set up eventually, but that is not guaranteed.

Long 6 DOUG $(DOUG)$ (July 18) 2.5 calls: We will hold without a stop while the takeover rumors play out.

Long 1 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 for two consecutive days.

Long 4 BKR (July 18) 39 calls: We will hold these calls as long as the weighted put-call ratio for BKR $(BKR)$ remains on a buy signal.

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

Long 4 HAS $(HAS)$ (July 18) 72.5 puts: Even though this is a recent position, it should be sold now, since the put-call ratio has reversed direction.

MW Why this stock-market breakout is the real deal - and the S&P 500 still has room to run

By Lawrence G. McMillan

The market internals are strong, in stark contrast to the upside breakout in February

The S&P 500 index SPX has continued to rise, registering new all-time highs repeatedly. It appears that the current breakout to all-time highs is stronger than the failed one of last February. There is support at 6,150 (the old highs), 6,020 (the highest circled gap on the accompanying SPX chart), and 5,920. A pullback below 5,920 would negate the current upside breakout, but I don't expect that to happen.

There technically is no traditional resistance when SPX is at all-time highs, but we sometimes use the +4<SIGMA> "modified Bollinger band" as a target of sorts. SPX is above that band, so the previous McMillan volatility band (MVB) sell signal was stopped out for a loss.

However, what we call a "classic" sell signal is setting up. We don't trade those, though, for they have a history of whipsaws. A "classic" sell signal will occur when SPX closes below the +3<SIGMA> band. That would occur today on a close below 6,168, but that "target" moves daily. Even if that did occur, there would have to be further downside movement in order to confirm a new MVB sell signal, which we would trade.

The market internals are strong, in stark contrast to the upside breakout in February. Equity-only put-call ratios had been on a sell signal, but that has been stopped out by the fact that both ratios have moved to new relative lows - below the June lows. So, they are once again on buy signals in overbought territory. They would have to roll over and begin to trend higher in order to register new sell signals.

Breadth has been very strong since new all-time highs were reached by SPX. Thus, the breadth oscillators are on buy signals and are overbought. It is a good thing for them to be overbought when SPX is pushing into new all-time-high territory. In addition, cumulative volume breadth (CVB) has been very strong and has made new all-time highs on five of the last seven trading days. That is true for both "stocks only" and NYSE data. That is strong confirmation of the new all-time highs being made by SPX.

New 52-week highs on the NYSE have numbered more than 100 for five consecutive days, and thus this indicator - which had been dormant since April 23 - is on a buy signal. It will remain there until new lows outnumber new highs on the NYSE for two consecutive days.

Realized volatility has continued to fall as SPX has risen. The 20-day historical volatility of SPX (HV20) is now down to 10%. If it were to fall to 8%, sell signals would set up, but that could take some time.

Implied volatility, in the form of VIX VIX, has also declined and that presents a bullish situation. Both the VIX "spike peak" buy signal of June 24 and the trend of VIX buy signal remain in place. It would require a sharp rise in VIX to stop out either buy signal.

The construct of volatility derivatives remains bullish for stocks. The term structures slope upwards, and the VIX futures are trading at a healthy premium to VIX.

In summary, the situation is bullish. The SPX chart is bullish and so are most of the internal indicators. We will, however, trade any confirmed signal that occurs. Meanwhile, continue to roll calls that are deeply in-the-money up to higher strikes.

New recommendation: The big (volatility) short

The premium on VIX futures constantly decays as time passes. When that premium is sufficiently large, it can be profitable to own SVXY SVXY - the inverse VIX ETF - for that ETF shorts the VIX futures and thus benefits when the time decay takes place.

A new signal was generated this week, as the VIX futures premium ballooned. Since the theory is that SVXY will benefit from the time decay of the VIX futures premium, we are recommending the purchase of SVXY calls.

Buy 5 SVXY (July 18) 42.5 calls in line with the market.

We monitor the weighted VIX futures premium via a proprietary calculation. This trade would be stopped out if the futures premium declines too much. We will update the calculation weekly.

New recommendation: Core Scientific (CORZ)

CORZ (CORZ) option volume has been at unusually high levels for several days, as events play out with regards to a Wall Street Journal report that Coreweave (CRWV) was in talks to acquire CORZ. No further information has been provided with regards to potential takeover price or deal terms. Stock volume patterns are very strong. There is support at 16.

I like the volume here, so it is worth a trade. However, the options are very expensive. One might consider a bull spread, but we are going with an outright long call:

Buy 4 CORZ (July 18) 17 calls in line with the market.

New recommendation: New highs vs. new lows

New highs numbered more than 100 on the NYSE on June 26 and again on June 27. So, this buy signal is finally in place.

Buy 1 SPY SPY(Aug. 29) at-the-money call and sell 1 SPY (Aug. 29) call with a striking price 20 points higher.

Use the nearest strikes if those specified in the recommendation do not exist. We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Market insight: VIX from a seasonal perspective

Periodically we publish the accompanying chart, which shows the VIX composite from 1989 through some more current date - Dec. 31, 2024, in this case. We usually update this chart annually, because it is meant to give some insight as to where VIX goes at what time of the year.

There are four distinct trends on the chart. 1) First, volatility rises from the first of the year through mid-March. 2) Then it begins a decline toward the lows of the year, which it reaches in July. For a long while, the yearly low was almost exactly at July 1, but in recent years, the lows of the chart have extended all the way through the month of July.

3) From there, VIX begins to climb toward its yearly highs, which are typically registered in October, when the stock market takes a big tumble. 4) After that, volatility declines rather sharply into year-end.

Since this is a composite chart, each individual year is going to be somewhat different than this. But it is a good roadmap as to what to expect in general.

In 2024, the yearly high was that huge spike in August, so the yearly peak occurred then, not in October. But overall, 2024 was not far from the composite "norm." For example, the 2024 lows for VIX were all throughout the June-July period.

This year's VIX data is not yet incorporated into the composite chart shown above. Obviously, the huge VIX spike peak in April is going to have some effect on the composite chart when that data is incorporated. But currently, we seem to be well on our way toward another yearly low in July.

That is often a good time to buy straddles on stocks or the broad market itself. You might think that buying calls on VIX would work too, but remember that you can't trade VIX, you can only trade VIX futures and options (which are essentially options on those futures), or ETFs that buy those futures (VXX VXX, for example). Since there is time decay in the futures premium, you are fighting an uphill battle against that decay.

Many casual observers think that August is a dull month for the market, but it really isn't. It's when volatility begins to increase and sometimes it leads to some very volatile results, such as in August 2024. So, the time to begin establishing long positions in volatility is in July, and it may be too late by August.

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 APH $(APH.UK)$ (July 18) 95 calls: Raise the closing stop to 94. Roll up again at 105.

Long 1 TSEM (July 18) 42 call: The long calls were rolled up when TSEM (TSEM) traded above $42 on May 14. Roll the calls 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 yourself out if SPY closes below 603.

Long 2 SPY (July 18) 613 calls: This position was bought in line with the cumulative volume breadth (CVB) buy signal. That signal is still in effect. CVB made a new all-time high on four of the last six trading days. The target was for SPY to eventually make a new all-time high, which it has done. Now, roll up to SPY (July 18) at-the-money calls.

Long 1 SPY (July 18) 576 put and short 1 SPY (July 18) 525 put: This spread is based on the McMillan volatility band (MVB) sell signal that took place on May 23 when SPX traded below 5,795. The position is stopped out since SPX closed above the +4<SIGMA> band. Exit this spread now. A new MVB sell signal may set up eventually, but that is not guaranteed.

Long 6 DOUG (DOUG) (July 18) 2.5 calls: We will hold without a stop while the takeover rumors play out.

Long 1 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 for two consecutive days.

Long 4 BKR (July 18) 39 calls: We will hold these calls as long as the weighted put-call ratio for BKR (BKR) remains on a buy signal.

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

Long 4 HAS $(HAS.UK)$ (July 18) 72.5 puts: Even though this is a recent position, it should be sold now, since the put-call ratio has reversed direction.

(MORE TO FOLLOW) Dow Jones Newswires

July 03, 2025 12:51 ET (16:51 GMT)

MW Why this stock-market breakout is the real -2-

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

-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.

(END) Dow Jones Newswires

July 03, 2025 12:51 ET (16:51 GMT)

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