The stock market, as measured by the S&P 500 index
SPX,
+0.55%,
continues to plow forward to new all-time highs. Other main indexes — the Dow Jones Industrial Average
DJIA,
+0.18%,
the Nasdaq-100
NDX,
+1.28%
and the Russell 2000
RUT,
-0.25%
— are doing similar.

The S&P had a scare on Monday, when it bought off over 90 factors intraday, largely as a response to the indisputable fact that it had been so overbought to shut out 2020. However, it bounced from the 3662 stage and closed above its rising 20-day transferring common that day. It has not closed under that transferring common since early November.

Thus, the momentum of the S&P chart stays optimistic. Because that is the most essential indicator, merchants should remain lengthy the market, elevating trailing stops as wanted.

That pullback on Monday to the 3662 stage was simply above the broader assist space at 3630-3650. Hence that complete space now’s essential assist, merely as a result of SPX has bounced off of there so many instances. That additionally signifies that a violation of that stage can be bearish. There can be a assist stage at 3550. On the accompanying chart, these two assist areas are denoted by crimson horizonal strains.

That’s actually all you must know proper now, conserving issues fairly easy: keep lengthy the market so long as SPX is above these assist strains.

The S&P had a scare on Monday, when it bought off over 90 factors intraday, largely as a response to the indisputable fact that it had been so overbought to shut out 2020. However, it bounced from the 3662 stage and closed above its rising 20-day transferring common that day. It has not closed under that transferring common since early November.

Some different indicators have generated promote alerts, or not less than have come near doing so. But such promote alerts have to be seen with a certain quantity of skepticism till confirmed by an accompanying breakdown in the worth of SPX.

Equity-only put-call ratios are good instance. The ratios have been (and nonetheless are) very overbought, that means that decision shopping for has been heavy and dominant. Since these are opposite indicators, that finally results in promote alerts when the name shopping for wanes. These ratios have begun to climb (slowly) in the previous week, as famous by the two put-call ratio charts.

Technically these are on promote alerts. However, they aren’t rising as a result of there was a shift in sentiment, however reasonably as a result of they have been so low on their charts that they’re “reverting to the mean” to some extent.

So we’re viewing these promote alerts with skepticism until SPX breaks down under a assist stage. We would anticipate these put-call ratios to be rising quickly in a very bearish state of affairs for shares.

The S&P had a scare on Monday, when it bought off over 90 factors intraday, largely as a response to the indisputable fact that it had been so overbought to shut out 2020. However, it bounced from the 3662 stage and closed above its rising 20-day transferring common that day. It has not closed under that transferring common since early November.

The S&P had a scare on Monday, when it bought off over 90 factors intraday, largely as a response to the indisputable fact that it had been so overbought to shut out 2020. However, it bounced from the 3662 stage and closed above its rising 20-day transferring common that day. It has not closed under that transferring common since early November.

Market breadth had been one in all the stronger areas of technical assist for the market. But in the previous couple of weeks, breadth has wavered. Both breadth oscillators generated two short-lived promote alerts which have each been stopped out. This is our shortest-term indicator, and it isn’t uncommon to see whipsaws in the alerts corresponding to this.

At this second, each breadth oscillators are again on purchase alerts. Moreover, the cumulative Advance-Decline strains and cumulative quantity breadth (CVB) each made new all-time highs on each Tuesday and Wednesday.

New highs are persevering with to dominate new lows in a means by no means fairly seen earlier than On Wednesday, the differential between new highs and new lows was the largest in the historical past of our database, by way of all three knowledge units — NYSE, NASDAQ, and “optionable stocks.” This indicator stays extraordinarily bullish for the stock market.

Volatility has joined the bullish refrain as effectively, with a brand new VIX “spike peak” purchase sign as of the shut of buying and selling on Tuesday. There was a faculty of thought that VIX may break down as soon as the Georgia Senate elections have been over, however that hasn’t performed out. VIX
VIX,
-3.62%
stays reasonably elevated — above 22 — merely as a result of many merchants are nonetheless feeling the must pay up for SPX places (the primary driver of the worth of VIX). That doesn’t imply these merchants are bearish (they’re in all probability shopping for shares at the similar time they’re shopping for SPX places — that’s, the places are for cover).

In any case, VIX stays on its second “spike peak” purchase sign in that final couple of weeks.

The S&P had a scare on Monday, when it bought off over 90 factors intraday, largely as a response to the indisputable fact that it had been so overbought to shut out 2020. However, it bounced from the 3662 stage and closed above its rising 20-day transferring common that day. It has not closed under that transferring common since early November.

Finally, the assemble of volatility derivatives stays bullish the place it counts – in the entrance finish of the VIX futures time period construction. As lengthy as January VIX futures proceed to commerce at a cheaper price than February VIX futures, that’s bullish for the stock market. That assemble remained in place even throughout Monday’s 90-point selloff.

The Santa Claus rally interval ended with a achieve of just below 1%, and so a possible promote sign was averted there (if the interval had ended with a loss, that will have been a promote sign). The subsequent seasonal commerce that we’re eyeing will not be till the finish of January.

In abstract, remain bullish so long as the SPX chart holds above assist. Roll lengthy calls as much as greater strikes and/or increase trailing stops however keep lengthy. Do not develop into complacent, nonetheless, for finally there might be promote alerts which can be confirmed, they usually should be acted on.

We are going to make use of this technique: whereas remaining lengthy, if promote alerts do happen, we are going to take them in small measurement. Later, if SPX breaks assist, we’d then add to the bearish positions.

New suggestion: Gilead Sciences

This suggestion is predicated on a put-call ratio purchase sign in Gilead Sciences
GILD,
+0.83%.
The purchase sign itself came about a few weeks in the past, after there had been overly heavy put shopping for in Gilead Sciences (keep in mind, put-call ratio alerts are opposite alerts, so heavy put shopping for implies that one should be lengthy the stock – modulo sure different standards). In any case, we needed to see the stock worth recuperate considerably, and now it has.

Buy 3 GILD Mar (nineteenth) 62.5 calls

At a worth of three.70 or much less.

GILD: 63.09 Mar (nineteenth) 62.5 name: provided at 3.60

We will maintain so long as the put-call ratio is on a purchase sign for GILD.

The S&P had a scare on Monday, when it bought off over 90 factors intraday, largely as a response to the indisputable fact that it had been so overbought to shut out 2020. However, it bounced from the 3662 stage and closed above its rising 20-day transferring common that day. It has not closed under that transferring common since early November.

New suggestion: VIX “spike peak” purchase sign

Another VIX “spike peak” purchase sign occurred on Tuesday. Since we had beforehand been lengthy an analogous place primarily based on the VIX “spike peak” purchase sign of Dec. 21, maybe you are nonetheless lengthy that unfold. If you are usually not lengthy a SPY unfold primarily based on the VIX “spike peak” purchase sign, then take this suggestion. But if you are nonetheless lengthy from earlier than, don’t double up – maintain just one lengthy SPY bull unfold primarily based on the VIX “spike peak” purchase alerts.

Buy 2 SPY Feb (fifth) at-the-money calls

And promote 2 SPY Feb (fifth) calls with a placing worth 13 factors greater.

New suggestion: Conditional time period construction promote sign

IF Jan VIX futures settle at a better worth than Feb VIX futures on any given day,

THEN

Buy 2 SPY Jan (twenty ninth) at-the-money places

And promote 2 SPY Jan (twenty ninth) places with a placing worth 25 factors decrease.

If this place is established, then cease your self out if the time period construction reverts again to its regular state, with Feb closing greater than Jan.

Follow-up motion

All stops are psychological closing stops until in any other case famous.

• Long 500 CLIR frequent stock: The closing cease stays at 2.74.

• Long 5 IVZ Jan (fifteenth) 16 calls: The cease stays at 16.75.

• Long 500 shares of SURF frequent: The cease stays at 8.50.

• Long 2 expiring SPY Jan (eighth) 371 calls and quick 1 SPY Jan (eighth) 381 calls: This place was initially taken when SPX closed above 3588 on Nov. 16. Since the SPX chart continues to be bullish, we wish to stick with this place. Roll to the similar variety of SPY Jan (twenty ninth) 367 – 380 bull spreads. That is, promote the place you at the moment have and exchange it by shopping for 2 SPY Jan (twenty ninth) 367 calls and promote 2 SPY Jan (twentieth) 380 calls. We will proceed to carry and not using a cease since now we have already rolled up a few instances.

• Long 0 IWM Jan (eighth) 194 calls: We purchased these for the post-Thanksgiving seasonal commerce, they usually have been rolled up twice. We exited the commerce at the shut of buying and selling on Tuesday, which is the finish of the seasonally bullish interval. For the document, the Russell 2000 index
IWM,
-0.22%
 gained 7% over that interval.

• Long 3 CATM Jan (fifteenth) 35 calls: Cardtronics
CATM,
+15.13%
continues to edge greater, as rumors flow into {that a} greater bid is forthcoming. Continue to carry.

• Long 1 BMRN Jan (fifteenth) 90 name: The cease stays at 82.

• Long 2 AIG Mar (nineteenth) 40 places: We will maintain so long as the put-call ratio continues to be on a sign, which it’s presently.

• Long 0 SPY Jan (twenty ninth) 368 calls and quick 0 SPY Jan (twenty ninth) 383 calls: This place was primarily based on the VIX “spike peak” purchase sign of Dec. 21. This unfold was stopped out on Monday, when VIX closed 4.22 greater than the day earlier than. The subsequent day, nonetheless, one other spike peak purchase sign occurred. We are buying and selling that new sign (see suggestion in the primary publication above). If you didn’t but promote this unfold, I’d not double up. Just maintain one place primarily based on the VIX “spike peak” purchase sign.

Send inquiries to: [email protected]

Lawrence G. McMillan is president of McMillan Analysis, a registered funding and commodity buying and selling advisor. McMillan might maintain positions in securities really useful on this report, each personally and in consumer accounts. He is an skilled dealer and cash supervisor and is the creator of the bestselling e-book “Options as a Strategic Investment.”

Disclaimer: ©McMillan Analysis Corporation is registered with the SEC as an funding advisor and with the CFTC as a commodity buying and selling advisor. The info on this publication has been fastidiously compiled from sources believed to be dependable, however accuracy and completeness are usually not assured. The officers or administrators of McMillan Analysis Corporation, or accounts managed by such individuals might have positions in the securities really useful in the advisory.