MW The stock market keeps on giving - and investors aren't questioning a good thing

By Lawrence G. McMillan

Technical indicators point to more upside

The S&P 500 index SPX continues to plow ahead and make all-time highs. Each small pullback creates a new theoretical support area. The most recent is 6,700, which was the September high until that was exceeded in early October. Then this week's brief pullback to 6,700 seems to have successfully tested that level. There is also support at 6,550, 6,500, 6,360-6,340, and 6,200. These are marked as horizontal red lines on the SPX chart. In reality, a pullback that broke down below 6,500 would be a cause for some concern.

SPX was strong enough that it closed above the +4<SIGMA> "modified Bollinger band" (mBB) on Oct. 6. That stopped out the previous McMillan volatility band (MVB) sell signal. Almost immediately - on Oct. 7 - SPX had a down day and closed below the +3<SIGMA> band. That generated what we call a "classic" mBB sell signal. We don't trade those because they have a history of being whipsawed, but it is marked with a green arrow on the SPX chart. Rather, we wait for further confirmation on the downside in order to generate a full MVB sell signal. That would occur if SPX trades at 6,680 or lower. So far, that has not occurred.

Equity-only put-call ratios continue to drop. That is bullish for stocks. The ratios have dropped so far, though, that they are near the lower regions of their charts - meaning they are in overbought territory. The standard ratio hasn't been this low since November 2021. The weighted ratio is at a new 2025 low, but hasn't yet fallen below the December 2024 lows. In any case, just because they are overbought is not a cause for selling stocks. When the ratios roll over and begin to trend higher, then that will generate sell signals.

Breadth, as measured by advancing versus declining issues, has remained poor. Normally, with SPX making new all-time highs, breadth would be expanding. It is not, and some find that a problem. For the record, NYSE breadth has been worse than "stocks only" breadth, and so the NYSE breadth oscillator remains on a sell signal, while the "stocks only" breadth oscillator continues to meander back and forth between a potential buy or sell.

However, when one looks at breadth in terms of volume (that is, volume of advancing issues minus volume of declining issues), a different picture emerges. The running sum of that daily calculation is what we call cumulative volume breadth (CVB) and it has been making new all-time highs right along with SPX. CVB has closed at a new all-time high on five of the last six trading days, just as SPX has done. This is strong confirmation of the new highs by SPX.

New highs on the NYSE continue to dominate new lows, and so this indicator - which gave a buy signal back in June - remains bullish. It would be stopped out if new lows were to exceed new highs on the NYSE for two consecutive days.

Realized volatility remains at very low levels, indicative of an overbought market. Specifically, the 20-day historical volatility of SPX (HV20) is at 6%. That's not a problem until it begins to rise. If it rises to 10%, that would be a sell signal for the broad stock market (although the last one of those, back in August, was not profitable). In general, rising volatility is not good for stocks.

Implied volatility, as measured by VIX VIX, is also low, although not at yearly lows. There seems to be some concern amongst traders about the market - this being October and all - and so a certain amount of SPX put buying has been taking place even while stocks are rising. That increases the price of VIX slightly, but not enough for concern. The trend of VIX buy signal (for stocks) remains in place. A concern would arise if VIX were to close above its 200-day moving average for two consecutive days. That MA is just above 19 currently.

The construct of volatility derivatives remains bullish for stocks, too. The term structures of VIX futures and of the Cboe volatility indices continue to slope rather steeply upwards. Furthermore, VIX futures are trading at a healthy premium to VIX. As long as that is the case, stocks are in a bullish mode.

In summary, we continue to view the market positively. The SPX chart is bullish and most of our indicators are still on buy signals (although some have reached overbought status). We will take any new signals that arise, and we continue to recommend that one roll deeply in-the-money calls upward.

New Recommendation: Potential MVB sell signal

On Oct. 6, SPX closed above the +4<SIGMA> "modified Bollinger band" (mBB). Then the next day, SPX fell. That was enough to force SPX to close below the +3<SIGMA> band and thus generate a "classic" mBB sell signal. We don't trade those, but if SPX trades at 6,680 today (or on any day in the near future), that would generate a new MVB sell signal.

If SPX trades at or below 6,680, a new MVB sell signal will be in place.

If so, buy 1 SPY SPY (Nov. 21) at-the-money put and sell 1 SPY (Nov. 21) put with a striking price 50 points lower.

If there is no striking price exactly 50 points lower, then use the nearest strike.

New recommendation: BXP Inc. (BXP)

There has been a new weighted put-call ratio sell signal in BXP (BXP). In addition, the stock has broken down below support, adding some technical weight to the put-call ratio sell signal.

Buy 2 BXP (Jan. 16) 72.5 puts in line with the market.

We will hold this position as long as the weighted put-call ratio for BXP remains on a sell signal.

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 $(APH)$ (Oct. 17) 120 calls: There is no longer a trailing stop here, since the position has been rolled up several times. Roll up again at 130.

Long 1 TSEM $(TSEM)$ (Oct. 17) 75 call: These calls were rolled up when TSEM traded at 75 on Oct. 1. Continue to hold without a stop. Roll up again at 85.

Long 1 expiring SPY (Oct. 10) 660 call and short 1 SPY (Oct. 10) 675 call: This position is the trend of VIX buy signal. Roll to the SPY (Oct. 31) 672-687 call bull spread. Stop yourself out if VIX closes above 19 for two consecutive days.

Long 5 SVXY SVXY (Oct. 19) 51 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 1.97. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.

Long 1 expiring SPY (Oct. 10) 660 call and sell 1 SPY (Oct. 10) 675 call: Roll to the SPY (Oct. 31) 672-687 call bull spread. We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Long 4 ATAI $(ATAI)$ (Oct. 17) 4 calls: The stop remains at 4.50.

Long 2 SPLG SPLG (Oct. 17) 79 calls and long 2 SPLG (Oct. 17) 76 puts: Initially, we will hold without a stop, but we intend to risk a maximum of about half the straddle price. The calls were rolled up when SPLG traded at 79 on Oct. 3. Roll the calls up at 82 and the puts down at 73.

Long 1 GLD GLD (Nov. 21) 353 call and short 1 GLD (Nov. 21) 370 call: When GLD traded at the higher strike (353) on Sept. 30, this position was rolled up. Raise the closing, trailing stop to 352 for this spread.

Long 10 CORN CORN (Nov. 21) 17 calls: Sell these call now since the put-call ratio for corn futures has rolled over to a sell signal.

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

Long 6 BITF $(BITF)$ (Oct. 17) 3 calls: Raise the closing stop to 2.75.

Long 2 FTNT $(FTNT)$ Oct. (17) 80 calls: Continue to hold as long as the put-call ratio for FTNT is on a buy signal.

Long 1 SPY (Nov. 21) 650 put and short 1 SPY (Nov. 21) 600 put: This position is based on the MVB sell signal. That sell signal was stopped out on Oct. 6. See the conditional recommendation above regarding a potential new MVB sell signal. Meanwhile, exit this spread.

Long 1 SPY (Oct. 17) 656 put: This position is held in line with the breadth-oscillator sell signals. Those sell signals are still in place. We will exit this position if both breadth-oscillator sell signals are stopped out.

Long 1 ASTS $(ASTS)$ (Nov. 21) 60 call and short 1 ASTS (Nov. 21) 80 call: This position should be rolled up 20 points on each strike since ASTS traded at 80 on Oct. 8. Raise the trailing closing stop to 59.

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.

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

MW The stock market keeps on giving - and investors aren't questioning a good thing

By Lawrence G. McMillan

Technical indicators point to more upside

The S&P 500 index SPX continues to plow ahead and make all-time highs. Each small pullback creates a new theoretical support area. The most recent is 6,700, which was the September high until that was exceeded in early October. Then this week's brief pullback to 6,700 seems to have successfully tested that level. There is also support at 6,550, 6,500, 6,360-6,340, and 6,200. These are marked as horizontal red lines on the SPX chart. In reality, a pullback that broke down below 6,500 would be a cause for some concern.

SPX was strong enough that it closed above the +4<SIGMA> "modified Bollinger band" (mBB) on Oct. 6. That stopped out the previous McMillan volatility band (MVB) sell signal. Almost immediately - on Oct. 7 - SPX had a down day and closed below the +3<SIGMA> band. That generated what we call a "classic" mBB sell signal. We don't trade those because they have a history of being whipsawed, but it is marked with a green arrow on the SPX chart. Rather, we wait for further confirmation on the downside in order to generate a full MVB sell signal. That would occur if SPX trades at 6,680 or lower. So far, that has not occurred.

Equity-only put-call ratios continue to drop. That is bullish for stocks. The ratios have dropped so far, though, that they are near the lower regions of their charts - meaning they are in overbought territory. The standard ratio hasn't been this low since November 2021. The weighted ratio is at a new 2025 low, but hasn't yet fallen below the December 2024 lows. In any case, just because they are overbought is not a cause for selling stocks. When the ratios roll over and begin to trend higher, then that will generate sell signals.

Breadth, as measured by advancing versus declining issues, has remained poor. Normally, with SPX making new all-time highs, breadth would be expanding. It is not, and some find that a problem. For the record, NYSE breadth has been worse than "stocks only" breadth, and so the NYSE breadth oscillator remains on a sell signal, while the "stocks only" breadth oscillator continues to meander back and forth between a potential buy or sell.

However, when one looks at breadth in terms of volume (that is, volume of advancing issues minus volume of declining issues), a different picture emerges. The running sum of that daily calculation is what we call cumulative volume breadth (CVB) and it has been making new all-time highs right along with SPX. CVB has closed at a new all-time high on five of the last six trading days, just as SPX has done. This is strong confirmation of the new highs by SPX.

New highs on the NYSE continue to dominate new lows, and so this indicator - which gave a buy signal back in June - remains bullish. It would be stopped out if new lows were to exceed new highs on the NYSE for two consecutive days.

Realized volatility remains at very low levels, indicative of an overbought market. Specifically, the 20-day historical volatility of SPX (HV20) is at 6%. That's not a problem until it begins to rise. If it rises to 10%, that would be a sell signal for the broad stock market (although the last one of those, back in August, was not profitable). In general, rising volatility is not good for stocks.

Implied volatility, as measured by VIX VIX, is also low, although not at yearly lows. There seems to be some concern amongst traders about the market - this being October and all - and so a certain amount of SPX put buying has been taking place even while stocks are rising. That increases the price of VIX slightly, but not enough for concern. The trend of VIX buy signal (for stocks) remains in place. A concern would arise if VIX were to close above its 200-day moving average for two consecutive days. That MA is just above 19 currently.

The construct of volatility derivatives remains bullish for stocks, too. The term structures of VIX futures and of the Cboe volatility indices continue to slope rather steeply upwards. Furthermore, VIX futures are trading at a healthy premium to VIX. As long as that is the case, stocks are in a bullish mode.

In summary, we continue to view the market positively. The SPX chart is bullish and most of our indicators are still on buy signals (although some have reached overbought status). We will take any new signals that arise, and we continue to recommend that one roll deeply in-the-money calls upward.

New Recommendation: Potential MVB sell signal

On Oct. 6, SPX closed above the +4<SIGMA> "modified Bollinger band" (mBB). Then the next day, SPX fell. That was enough to force SPX to close below the +3<SIGMA> band and thus generate a "classic" mBB sell signal. We don't trade those, but if SPX trades at 6,680 today (or on any day in the near future), that would generate a new MVB sell signal.

If SPX trades at or below 6,680, a new MVB sell signal will be in place.

If so, buy 1 SPY SPY (Nov. 21) at-the-money put and sell 1 SPY (Nov. 21) put with a striking price 50 points lower.

If there is no striking price exactly 50 points lower, then use the nearest strike.

New recommendation: BXP Inc. (BXP)

There has been a new weighted put-call ratio sell signal in BXP (BXP). In addition, the stock has broken down below support, adding some technical weight to the put-call ratio sell signal.

Buy 2 BXP (Jan. 16) 72.5 puts in line with the market.

We will hold this position as long as the weighted put-call ratio for BXP remains on a sell signal.

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) (Oct. 17) 120 calls: There is no longer a trailing stop here, since the position has been rolled up several times. Roll up again at 130.

Long 1 TSEM (TSEM) (Oct. 17) 75 call: These calls were rolled up when TSEM traded at 75 on Oct. 1. Continue to hold without a stop. Roll up again at 85.

Long 1 expiring SPY (Oct. 10) 660 call and short 1 SPY (Oct. 10) 675 call: This position is the trend of VIX buy signal. Roll to the SPY (Oct. 31) 672-687 call bull spread. Stop yourself out if VIX closes above 19 for two consecutive days.

Long 5 SVXY SVXY (Oct. 19) 51 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 1.97. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.

Long 1 expiring SPY (Oct. 10) 660 call and sell 1 SPY (Oct. 10) 675 call: Roll to the SPY (Oct. 31) 672-687 call bull spread. We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Long 4 ATAI (ATAI) (Oct. 17) 4 calls: The stop remains at 4.50.

Long 2 SPLG SPLG (Oct. 17) 79 calls and long 2 SPLG (Oct. 17) 76 puts: Initially, we will hold without a stop, but we intend to risk a maximum of about half the straddle price. The calls were rolled up when SPLG traded at 79 on Oct. 3. Roll the calls up at 82 and the puts down at 73.

Long 1 GLD GLD (Nov. 21) 353 call and short 1 GLD (Nov. 21) 370 call: When GLD traded at the higher strike (353) on Sept. 30, this position was rolled up. Raise the closing, trailing stop to 352 for this spread.

Long 10 CORN CORN (Nov. 21) 17 calls: Sell these call now since the put-call ratio for corn futures has rolled over to a sell signal.

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

Long 6 BITF (BITF) (Oct. 17) 3 calls: Raise the closing stop to 2.75.

Long 2 FTNT (FTNT) Oct. (17) 80 calls: Continue to hold as long as the put-call ratio for FTNT is on a buy signal.

Long 1 SPY (Nov. 21) 650 put and short 1 SPY (Nov. 21) 600 put: This position is based on the MVB sell signal. That sell signal was stopped out on Oct. 6. See the conditional recommendation above regarding a potential new MVB sell signal. Meanwhile, exit this spread.

Long 1 SPY (Oct. 17) 656 put: This position is held in line with the breadth-oscillator sell signals. Those sell signals are still in place. We will exit this position if both breadth-oscillator sell signals are stopped out.

Long 1 ASTS (ASTS) (Nov. 21) 60 call and short 1 ASTS (Nov. 21) 80 call: This position should be rolled up 20 points on each strike since ASTS traded at 80 on Oct. 8. Raise the trailing closing stop to 59.

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.

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

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