Dash, this may or may not help? It doesn't do much for my little brain except the bit about Poet

Market Surge May Propel Stocks to Record Peaks

Authored by Lawrence G. McMillan

Emerging buy signals suggest a market upswing, though a rebound from oversold conditions remains a possibility.

This week, the stock market, tracked by the S&P 500 index, experienced robust growth, supported by dovish—or at least not hawkish—economic data on inflation and interest rates. This surge has lifted the S&P 500 well beyond its 20-day moving average and past the resistance level at 5,180.

The final hurdle is the historical peak around 5,260. Presently, two unfilled gaps on the S&P 500 chart could signal a shift back to a bearish outlook if they close. Specifically, a drop below 5,070 would give bears an opening to regain control. However, the current rally, which has significantly influenced market internals, could ascend to unprecedented highs. Should this occur, the S&P 500’s chart would be decidedly bullish. Yet, there’s still the possibility that this surge is merely a robust correction from oversold levels, not the onset of a new bullish phase.

The McMillan Volatility Band (MVB) buy indicator remains active (indicated by a green “B” on the S&P 500 chart). Its aim is the +4σ “modified Bollinger Band,” situated around 5,275 and currently stable—just within reach of new highs. A closure below the -4σ Band, now at 4,900 and trending upwards, would invalidate the trade.

Initially, equity-only put-call ratios continued to emit sell signals during the early stages of the stock market rally but have since shown signs of weakening. Both ratios began to decline earlier this week. The standard ratio is reverting to its recent highs, but our computational analysis suggests it’s poised to decrease, indicating a buy signal.

Conversely, the weighted ratio appears to have reached its zenith, suggesting a buy signal, although this is not corroborated by computational analysis. I’ve labeled these potential peaks as tentative buy signals for stocks, denoted by a “B?” on the charts. Clarity on these signals should emerge shortly.

Market breadth has been exceptionally positive. Breadth oscillators have emitted buy signals for a week and are now in a highly overbought state. Overbought conditions are not a concern during a rally in the S&P 500. Warnings would only arise if market breadth begins to decline.

Stock Market Update: Bullish Signals Suggest Potential for New Highs

The cumulative volume breadth (CVB), which is the ongoing tally of the volume from rising stocks minus that from falling ones, reached a new record on May 6. This often predicts that the S&P 500 will soon achieve a new peak.

The New York Stock Exchange (NYSE) has seen new highs outpace new lows, triggering a buy signal. This indicator had been neutral for only a brief period, maintaining a bullish stance since the previous November. The buy signal will persist unless new lows surpass new highs for two straight days.

The VIX has seen a significant drop, erasing the gains it made in April and returning to late March levels. A mid-April “spike peak” buy signal for stocks is still valid and will remain for 22 trading days unless the VIX spikes again, defined as a rise of at least 3.0 points over a maximum three-day span based on closing prices. The previous VIX sell signal has been canceled as the VIX fell below its 200-day moving average.

Moreover, the structure of volatility derivatives is bullish for stocks, with the term structures of both VIX futures and the Cboe Volatility Index sloping upwards. Despite doubts during the last downturn, bullish elements have regained dominance.

Currently, several bullish indicators are present, but the S&P 500 won’t be fully bullish until it sets new highs on consecutive days. Therefore, we’re keeping a bearish position for now but are actively trading based on other signals.

New Recommendations:

·         NYSE New Highs vs. New Lows Buy Signal: NYSE new highs have regained dominance over new lows, signaling a buy. This was confirmed on May 6. Engage in a SPY options trade by buying a June 21 at-the-money call and selling a call 17 points higher. This position will be closed if NYSE new lows outnumber new highs for two days in a row.

·         CVB Buy Signal: With the CVB hitting a new all-time high on May 6, it’s typically followed by the S&P 500 reaching new highs. Consider buying a SPY May 31 at-the-money call, acknowledging the full premium is at risk if the SPX doesn’t climb to a new high.

·         Lamb Weston Holdings: Following a poor earnings report about a month ago, Lamb Weston Holdings (LW) saw a surge in put buying, leading to a weighted put-call ratio buy signal. At its peak, put buying was 22 times higher than call buying. Buy two LW June 21 82.5 calls as long as the buy signal persists.

·         Walgreens Boots Alliance: Keep an eye on Walgreens Boots Alliance (WBA) for a potential buy signal. If WBA closes above 22.50, buy four WBA June 21 22.5 calls.

Follow-Up Actions:

All stops should be considered mental unless stated otherwise. For SPY spreads, follow the standard rolling procedure: if the underlying hits the short strike, roll the entire spread, maintaining the same expiration and strike distance. Hold the TLT May 17 90 puts as long as the put-call ratio sell signal for U.S. Treasury bonds is active. Sell the CSX May 17 32.50 puts now due to the change in the put-call ratio signal for CSX.

Market Update: Positive Shifts in Trading Indicators

CSX Corporation (CSX) has transitioned to a buy signal.

Holding four RSI May 17 5 calls without a stop is advised to allow takeover speculations to unfold.

For McDonald’s (MCD), with the put-call ratio potentially shifting, maintain a trailing stop. Execute a sale of the two MCD May 17 275 puts if MCD’s closing price exceeds $271.

Maintain the position of long two SPY May 31 516 puts and short two SPY May 31 486 puts as long as the equity-only put-call ratios continue to signal sell. This remains our primary bearish stance.

Increase the stop for the three AEYE May 17 12.5 calls to $16.20.

The position of long zero SPY May 24 502 puts and short zero SPY May 24 482 puts, initiated due to the VIX sell signal trend, was closed on May 3 following the VIX’s second consecutive day below its 200-day moving average.

For the long one SPY May 24 500 call and short one SPY May 24 515 call, acquired in alignment with the VIX “spike peak” buy signal on April 22, exit if the VIX enters “spiking” mode, defined as a closure at least 3.0 points higher within a three-day span. Currently, this would mean a VIX closure at or above 16.0. If this condition is not met, the position will be closed after 22 trading days.

The long one SPY May 31 508 call and short one SPY May 31 524 call, based on the MVB buy signal, targets the S&P 500 reaching the +4σ Band, currently at 5,270 and stable. This position will be terminated if the S&P 500 closes below the -4σ Band.

Elevate the trailing stop for the ten POET June 21 2 calls to $1.85.

Retain the three USO June 21 76 puts as long as the put-call ratio emits a sell signal.

All stops mentioned are mental closing stops unless specified otherwise.

For inquiries, contact [email protected].

Lawrence G. McMillan, president of McMillan Analysis, a registered investment and commodity trading advisor, may have personal and client account positions in securities mentioned in this report. He is a seasoned trader, money manager, and the author of “Options As A Strategic Investment.”

McMillan Analysis Corporation is registered with the SEC and CFTC. The information in this newsletter is compiled from reliable sources, but its accuracy and completeness are not guaranteed. Officers or directors of McMillan Analysis Corporation, or accounts they manage, may hold positions in the securities discussed.