MW Bulls and bears are in a tug-of-war for stock-market control. Here's the side you want to be on now.

By Lawrence G. McMillan

The S&P 500 chart is still bullish

The S&P 500 index SPX looks to be searching for some direction, but the SPX chart is still in a bullish uptrend. There are several support levels for the benchmark index: 6,340 (last week's low); 6,260; 6,200; and 6,150.

Even with SPX making another new high on Thursday, some market indicators are still leaning to the bearish side. One is the McMillan volatility band (MVB) sell signal, which remains in place.

Another set of bearish indicators are the equity-only put-call ratios. Both remain in a negative state for the market. Yes, there has been a slight rolling over of the ratios in the past few days, but so far that has not dissuaded computer-analysis programs from suggesting that these ratios will continue to rise - thus keeping their bearish outlook for stocks.

Market breadth has had trouble in recent weeks but may finally be coming around. Technically, both breadth oscillators are still on sell signals at this time. However, they have improved this week, and breadth has been more positive than the broad market.

The last remaining bearish indicator is realized volatility. The 20-day historical volatility of SPX (HV20) continues to rise. It's at 12% now, and since it was recently as low as 6%, that is a sell signal for the broad market.

On a more positive note, new highs on the New York Stock Exchange continue to easily dominate new lows. That keeps this indicator in a bullish mode for stocks.

Then there is the implied volatility complex, where nearly everything is bullish. The Cboe Volatility Index VIX continues to drift to low levels, having set new lows for the year. That keeps the "spike peak" buy signal intact, as well as the trend of VIX buy signals (those are buy signals for stocks, that is, not VIX). Both would be stopped out if VIX were to jump higher, rising above its 200-day moving average.

The last indicator that we view is the construct of volatility derivatives, and that is maintaining its positive outlook for the stock market. The term structures of the VIX futures and of the Cboe volatility indices continue to slope steeply upward. Moreover, the VIX futures are trading at a large premium to VIX. The first warning sign from this complex would be if September VIX futures began to trade at a higher price than October VIX futures, but that is nowhere near the case currently.

In summary, we are maintaining a positive outlook in general, because of the bullish nature of the SPX chart. We will trade all confirmed signals around that. Continue to roll deeply in-the-money options.

New recommendation: SPX straddle buy

When the broad market reaches a previous all-time high accompanied by low volatility, it is often a good time to buy straddles on the broad market. In order to keep the cost down, we are going to use SPLG SPLG options. Even at low volatility, a SPY SPY October 645 straddle is not cheap in dollar terms - trading at about 25.50 or so. So, we recommend a straddle buy on the "mini-SPX" ETF, SPLG (State Street SPDR S&P 500 ETF). It's the exact same chart as SPY, but about 1/8th the price.

Buy 2 SPLG (Oct. 17) at-the-money straddles at a price of 3.05 or less.

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 trades up to 79, then roll the Oct. 76 calls up to the Oct. 79 calls; if it trades down to 73, then roll the puts down.

New recommendation: Southwest Airlines $(LUV)$

There has been a new buy signal issued by the weighted put-call ratio of LUV (LUV). In the past year, two other reasonably strong buy signals have emanated from the same level.

Buy 4 LUV (Oct. 17) 32.5 calls in line with the market.

We will hold these calls as long as the put-call ratio chart for LUV is on a buy signal.

Market insight: earnings of note

Nvidia (NVDA): Once again, Nvidia (NVDA) had a small move after its earnings report. This is the third of the past four quarters where the analysts have more or less gotten it "right" in terms of predicting Nvidia's earnings. Option traders had priced the straddles coming into the earnings above at the average of the previous moves - estimating the post-earnings stock move at 11.7 points, or 6.45%. That was cheaper than five of the past 10 post-earnings moves.

MongoDB $(MDB)$: This stock had a positive and explosive reaction to a strong earnings report. The pre-earnings straddle for MongoDB (MDB) was priced at 35 points, or 16.3%. That's a big price to pay for a straddle, but it was justified when the stock bolted 81 points higher after the earnings. That straddle was priced right in the middle of the 10 previous post-earnings moves: higher than five and lower than five.

Abercrombie & Fitch $(ANF)$: This stock seems to either have a large post-earnings move or practically no move at all - it's feast or famine. This week, it was famine, as ANF (ANF) barely moved at all post-earnings. The straddle had been priced at 13 points, or 13.3% of the stock price. That was cheaper than five of the previous 10 post-earnings moves. Those five smallest moves average 3.2%, while the five largest moves average 15.3% - quite a difference.

So it seems that buying the straddles when they are priced right in the middle of the past 10 post-earnings moves is a 50/50 proposition, as one might expect. A better prospect was Snowflake (SNOW), where the straddle was priced at 22 points (11%) - cheaper than seven of the past 10 moves.

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 $(APH)$ (Sept. 19) 110 calls: The closing stop remains at 105.

Long 1 TSEM $(TSEM)$ (Sept. 19) 49 call: Roll up to the TSEM (Sept. 19) 60 call. After this roll, there won't be a trailing stop, since we've taken in a lot of credits.

Long 1 SPY (Sept. 5) 645 call and short 1 SPY (Aug. 15) 665 call: This position is the trend of VIX buy signal. Stop out if VIX closes above 19.0 for two consecutive days.

Long 5 SVXY SVXY (Sept. 19) 47 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is at 2.64. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.

Long 1 expiring SPY (Aug. 29) 645 call and short 1 SPY (Aug. 29) 665 call: We will hold until new lows outnumber new highs on two consecutive days on the NYSE. Roll: Sell the spread you own and replace it with this: Buy 1 SPY (Sept. 19) 647 call and Sell 1 SPY (Sept. 19) 660 call.

Long 4 ATAI (Sept. 19) 2.5 calls: Stop out if ATAI $(ATAI)$ closes below $3.95 on any day.

Long 5 OPEN (Sept. 19) 2.5 calls: Stop out if OPEN $(OPEN)$ closes below $3.60 on any day.

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 return to "spiking mode."

Long 4 HPE (Nov. 21) 20 puts: Sell these HPE $(HPE)$ puts now, for the put-call ratio has rolled over and is descending.

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

Long 1 SPY (Sept. 12) 636 put and short 1 SPY (Sept. 12) 611 put: This is based on the breadth oscillator sell signals. We will hold this position as long as both breadth oscillators remain on sell signals. That status will be updated weekly.

Long 6 PPL (Oct. 17) 37 calls: we will hold these calls as long as the weighted put-call ratio of PPL $(PPL)$ 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 adviser. 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

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August 29, 2025 11:03 ET (15:03 GMT)

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