MW The stock market still has broad shoulders to support investors - even at record highs

By Lawrence G. McMillan

Netflix, Alibaba and a financial-sector ETF are worth a closer look

The S&P 500 index SPX made new all-time closing and intraday highs this week on two consecutive days. Even though market internals have not been strong, the old adage that "the SPX chart is the most important indicator" holds true once again. And that indicator is bullish. There is support at 6,400 (tentative), 6,200 (strong) and 6,150.

There are still some sell signals in place from a few of the internal indicators. So far, they have had little impact. The McMillan volatility band (MVB) sell signal is one (green "S" on the SPX chart). It would be stopped out if SPX were to close above the +4<SIGMA> band, which is currently at 6,520 and rising.

The equity-only put-call ratios are also on sell signals. Apparently, the latest rally in SPX has been accompanied by some fairly heavy put buying (protection?) which is causing the ratios to rise. As long as these ratios are rising, that is a theoretically negative signal for the stock market.

Market breadth has been struggling to stay positive, but in the past two days breadth has expanded tremendously while SPX is making all-time highs. That is a good sign, for it indicates that the SPX advance is strong and broad. Both breadth oscillators are back on buy signals now, so this indicator is finally positive once again.

Realized volatility is still signaling something of a problem. The 20-day historical volatility of SPX (HV20) had fallen to a mere 6% and then rose to 10%. That is a sell signal for stocks. When volatility (either implied or realized) is rising, stocks tend to have trouble. This sell signal remains in effect for now. It would be stopped out if HV20 were to fall back to 8% or lower.

New highs on the NYSE have continued to expand at a strong rate. They have dominated the number of new lows, and so this indicator remains bullish for stocks. Yesterday, there were more than 200 new highs on the NYSE, as SPX was making a new high of its own.

Implied volatility, and the associated indicators, have remained bullish on the stock market all along. They did not waver, as some of the internal indicators did. VIX VIX is back down below 15 - its lowest level of the year. As long as VIX remains low, it is merely an overbought condition and is not a sell signal for stocks. The problem would be if VIX were to start to rise sharply. So far that has not been the case.

The "spike peak" buy signal (green "B" on the VIX chart) remains in place. It will last for 22 trading days, or until early September. The trend of VIX buy signal (pink "B" on the chart) is also intact, as long as SPX continues to close below its 200-day moving average.

The construct of volatility derivatives is bullish in its outlook for stocks. The term structures of both the VIX futures and of the Cboe volatility indices slope upwards. Moreover, the VIX futures are trading with a fairly large premium to VIX. Our weighted VIX futures premium calculation remains a bullish levels.

In summary, we remain bullish in line with the SPX chart. However, we are trading all confirmed signals because each has its own track record, stops, and profit targets. Continue to roll deeply in-the-money options, to take partial profits and reduce risk of a reversal.

New recommendation: SPDR Financial ETF $(XLF)$

There is a new weighted put-call ratio buy signal in XLF XLF, and it is worth acting on.

Buy 4 XLF (Nov. 21) 53 calls in line with the market.

Market insight: Interesting put-call ratio charts

There are a couple of interesting put-call ratio buy signals, but these are expensive options and thus beyond the scope of the average recommendation in this newsletter. Even so, both cocoa futures and Netflix $(NFLX)$ (NFLX) have flashed new put-call ratio buy signals, and if you are trading in that size (one at-the-money October cocoa call costs about $6,000). An at-the-money NLFX October call costs about $7,000.

Market insight: Earnings of interest

Cava Group $(CAVA)$ options were priced at what seemed to be an expensive level prior to earnings. Those earnings were reported on Aug. 12 after the NYSE close of trading. The straddle was priced at 10.50, or 12.4% of the stock price prior to the earnings. That was higher than seven of the past eight post-earnings moves, indicating that analysts and others were expecting a rather large earnings surprise. Well, they got it, and the stock fell 19 points intraday on Aug. 13 and closed 14 points lower. So, when the straddle seems so far out of line, there apparently is a good reason for that.

Sea Ltd. (SE) was another large post-earnings mover. In this case, though, the straddle was too cheap. That is normally the type of situation we look for. Specifically, the straddle was priced at 15.20, or 10.35% of the stock price prior to the earnings announcement, which came before the NYSE opened on Aug. 12. That straddle price was cheaper than six of the previous 10 post-earnings reports, which makes it a buy from a statistical viewpoint. The stock jumped 28 points the following day.

Alibaba Group (BABA) could be an interesting play coming up. The problem here is that the company is being vague about when its earnings will be announced. In some cases, investors were expecting the earnings this week. Now, it looks like they're expecting them next week, but the option market has the most expensive options currently priced during the week ending August 29. So, it's hard to say "buy the straddle" since there is not a clear earnings date in place yet. In any case, when the earnings date is announced, we would look to buy the at-the-money straddle expiring that week if it can be bought for 5.4 % of the stock price or less.

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 (Aug. 15) 100 calls: Roll to the APH $(APH)$ (Sept. 19) 110 calls. Raise the closing stop to 104.

Long 1 expiring TSEM $(TSEM)$ (Aug. 15) 50 call: Allow this call to expire and do not replace it.

Long 4 expiring ATAI (Aug. 15) 2.5 calls: roll to the ATAI $(ATAI)$ (Sept. 19) 2.5 calls. Stop out if ATAI closes below $3.25 on any day.

Long 5 expiring OPEN (Aug. 15) 2.5 calls: Roll to the OPEN $(OPEN)$ (Sept. 19) 2.5 calls. Stop out if OPEN closes below $1.75 on any day.

Long 1 expiring SPY (Aug. 15) 625 call and short 1 SPY (Aug. 15) 640 call: This position is the trend of VIX buy signal. Whether or not you rolled up when SPY traded at 640, roll to the SPY (Sept. 5) 645-665 call spread. Stop out if VIX closes above 20 for two consecutive days.

Long 5 expiring SVXY (Aug. 15) 44 calls: Roll to the SVXY SVXY (Sept. 19) 47 calls. We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 3.20. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.

Long 1 SPY (Aug. 29) 645 call and short 1 SPY (Aug. 29) 665 call: Per the above instructions, this spread was rolled up when SPY traded at 645. We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Long 1 expiring AAPL (Aug. 15) 210 call and short 1 AAPL (Aug. 15) 225 call: Sell this spread and replace it with a simple long call: Buy 1 AAPL $(AAPL)$ (Sept. 19) 235 call. We will hold as long as the weighted put-call ratio for AAPL remains on a buy signal.

Long 1 SPY (Sept. 19) 635 put and short 1 SPY (Sept. 19) 595 put: This position was bought in line with the equity-only put-call ratio sell signals. Those ratios remain on sell signals, so continue to hold.

Long 1 SPY (Sept. 19) 635 call and short 1 SPY (Sept. 19) 655 call: This spread was bought in line with the "spike peak" buy signal. This trade will be held for 22 trading days from the time of the original signal (Aug. 4). It would be stopped out if VIX were to close above its recent peak price of 21.90.

Long 4 HPE (Nov. 21) 20 puts: we will hold this position as long as the weighted put-call ratio of HPE $(HPE)$ 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 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

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August 14, 2025 15:37 ET (19:37 GMT)

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