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MW Stocks are holding their own at these levels <br/> By Lawrence G. McMillan <br/> <br/> The market seems to be trying to gather momentum for another push higher <br/> <br/> The stock market, as measured by the S&P 500 index SPX, continues to hold above the previous all-time mark of 5,260. That level represents support, and stocks seem to be trying to gather momentum for another push higher. There are minor support levels below 5,260, but if SPX were to trade down to and below 5,200, that would put a definite crimp in the bullish expectations. <br/> <br/> There is no formal resistance on the upside, since SPX once again traded at a new all-time intraday high this morning in the wake of the Nvidia (NVDA) earnings. Not all the news has been positive, though, as evidenced by the negative market reaction to the FOMC minutes, which were released on Wednesday and seemed to indicate that a rate cut is not imminent (a fact which I think is evident to most serious students of the Fed, but which still disappointed the overoptimistic crowd). <br/> <br/> The previous McMillan Volatility Band (MVB) buy signal from mid-April has reached its target (the +4<SIGMA> "modified Bollinger Band," or mBB) and so it is complete. Now, SPX is trading above that Band and is in the process of setting up a "classic" mBB sell signal. That will occur when SPX closes below the +3<SIGMA> Band. Today, that would occur on a close below 5,305. We don't trade those, though, because of their frequency of whipsaw losses. We require further confirmation in order to generate a McMillan Volatility Band (MVB) sell signal. The occurrence of a "classic" sell signal does not guarantee that an MVB sell signal will necessarily follow. <br/> <br/> Equity-only put-call ratios continue to decline, and that is bullish for stocks. These ratios will remain on buy signals for stocks as long as they trend downward. Both ratios are low on their charts but are not down to the levels seen in March. So, they have more room to run before rolling over and beginning to rise. <br/> <br/> Breadth had been quite strong, but it has begun to deteriorate over the past few days. As a result, the breadth oscillators are still clinging to buy signals, but are not far from sell signals. Two more days of negative breadth would definitely generate sell signals. On a more positive note, cumulative volume breadth (CVB) has continued to make new all-time highs along with SPX, and that is positive confirmation of the stock market's move to all-time highs. <br/> <br/> The number of New Highs on the New York Stock Exchange has remained amazingly strong. There have been more than 100 New Highs registered on each of the last 14 days. That is a strong and bullish streak. This indicator remains positive. <br/> <br/> VIX VIX has drifted lower as SPX has risen, and VIX is now down below 12. That is its lowest close since November 2021 - slightly before the last bear market began. A low VIX is an overbought condition but is not a sell signal in and of itself. Rather, the trouble for stocks (i.e. the sell signal) will only begin when VIX begins to rise sharply. The "spike peak" buy signal that was generated on April 22 (see the accompanying VIX chart) has "expired." The trading system that we have built around those "spike peaks" calls for holding the long position for 22 trading days, and that time is up. So, we are exiting those long calls. <br/> <br/> However, the trend of VIX buy signal for stocks remains in place. It began with the circled area on the VIX chart about a week ago. I have some reservations about initiating a trending buy signal with VIX this low, because VIX needs to trend lower from here. The previous such signal is marked with a circle as well - a buy signal last November. That buy signal persisted until VIX popped above the 200-day moving average in February. SPX rose by a decent amount over that period, so the trend of VIX buy signal that is currently in place could do equally well. The current signal would be stopped out if VIX were to close above its 200-day moving average, which is currently just below 15 and beginning to trend lower again. <br/> <br/> The construct of volatility derivatives remains bullish in its outlook for the stock market. The term structures slope upward (with the exception of the "election bump" in the Oct VIX futures). May VIX futures expired yesterday, so June is now the front month. We will be watching June versus July now, and if June moves above July, that would spell trouble for stocks. That is not imminent, since July is trading about 1.00 over June. <br/> <br/> Our overall stance is that we are still maintaining a "core" bullish position. We have reduced exposure as two signals reached their goals (MVB and "spike peak"), and we have rolled other in-the-money positions higher. There are no sell signals in place at this time, but whatever signals materialize, we will trade them. <br/> <br/> New Recommendations: <WSODTagging WSODIssue="368730852">Blackline</WSODTagging> (BL) <br/> <br/> BL (BL) broke down below a multiple support level at 56 and is now in a bearish downtrend. <br/> <br/> Buy 3 BL June (21st) 52.5 puts in line with the market. <br/> <br/> BL: 51.04 June (21st) 52.5 puts: 2.55 bid, offered at 2.70. Stop out if BL closes above 58. <br/> <br/> New Recommendations: <WSODTagging WSODIssue="82528">CSX</WSODTagging> Inc. (<WSODTagging WSODIssue="82528">CSX</WSODTagging>) <br/> <br/> We are repeating this recommendation from last week. We had recently concluded a successful sell signal (and put purchase) in <WSODTagging WSODIssue="82528">CSX</WSODTagging> (<WSODTagging WSODIssue="82528">CSX</WSODTagging>). This buy signal appears equally attractive to that previous sell signal, but we want to see the stock rise above resistance. <br/> <br/> Conditional Call Buy in <WSODTagging WSODIssue="82528">CSX</WSODTagging>: IF <WSODTagging WSODIssue="82528">CSX</WSODTagging> closes above 34.60, THEN Buy 5 <WSODTagging WSODIssue="82528">CSX</WSODTagging> Aug (16th) 35 calls in line with the market. <WSODTagging WSODIssue="82528">CSX</WSODTagging>: 33.88. <br/> <br/> New Recommendations: <WSODTagging WSODIssue="283581">Walgreens Boots Alliance</WSODTagging> (WBA) <br/> <br/> This a longer-term potential buy signal from <WSODTagging WSODIssue="283581">Walgreens Boots Alliance</WSODTagging> (WBA). We are keeping this recommendation open but will not continue to reprint the reasoning behind the trade. <br/> <br/> IF WBA closes above 22.50, THEN Buy 4 WBA June (21st) 22.5 calls in line with the market. WBA: 18.50 <br/> <br/> Follow-Up Action <br/> <br/> All stops are mental closing stops unless otherwise noted. <br/> <br/> 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. <br/> <br/> Long 4 RSI (RSI) June (21) 7.5 calls: Raise the stop to 8.15. <br/> <br/> Long 3 AEYE (AEYE) June (21st) 20 calls: Raise the stop to 20.50. <br/> <br/> Long 1 expiring SPY SPY May (24) 530 call: A spread originally was bought in line with the VIX "spike peak" buy signal of April 22nd and then rolled to this call. Sell this call now to close the position since the buy signal has "expired" after 22 trading days. <br/> <br/> Long 1 SPY May (31) 530 call: Was originally a spread based on the MVB buy signal. The original 500-524 was rolled up, eventually becoming this long call. <br/> <br/> Long 10 POET (POET) June (21) 2 calls: The trailing closing stop remains at 1.85. <br/> <br/> Long 3 USO USO June (21) 76 puts: We will hold these puts as long as the put-call ratio is on a sell signal. <br/> <br/> Long 1 SPY June (21) 518 call and Short 1 SPY June (21st) 535 call: Was bought in line with the New Highs vs. New Lows buy signal. This trade would be stopped out if NYSE New Lows exceed NYSE New Highs for two consecutive days. <br/> <br/> Long 2 LW (LW) June (21) 82.5 calls: We will hold these calls as long as LW remains on a weighted put-call ratio buy signal. <br/> <br/> Long 3 CTSH (CTSH) July (19) 70 calls: We will hold these calls as long as the weighted put-call ratio is on a buy signal. <br/> <br/> All stops are mental closing stops unless otherwise noted. <br/> <br/> Send questions to: [email protected]. <br/> <br/> 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 best-selling book, "Options As A Strategic Investment." www.optionstrategist.com <br/> <br/> (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. <br/> <br/> -Lawrence G. McMillan <br/> <br/> 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. <br/> <pre> </pre> <br/> (END) Dow Jones Newswires<br/> <br/> May 25, 2024 06:02 ET (10:02 GMT)<br/> Copyright (c) 2024 Dow Jones & Company, Inc.SN202405250009832024-05-25 10:02:00.000000983DJNF
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