The S&P 500 Index
was met with formidable resistance simply above the 4300 stage and has fallen again sharply.
That resistance was within the type of the downtrend line that defines this bear market, in addition to the declining 200-day transferring common. That space stays resistance. The index dropped under 4170 — the purpose that had supposedly been an upside breakout. If it falls under 4070, that will be a big bearish improvement.
In the meantime, a McMillan Volatility Band (MVB) promote sign has been confirmed. First, SPX had traded above the +4σ “modified Bollinger Band” (mBB). Then it fell again under the +3σ Band. That motion created what we name a “basic” mBB promote sign. Lastly, the MVB “promote” was confirmed when SPX dropped additional. Its goal is the -4σ Band, which is presently close to 4000. A detailed above the +4σ Band would cease out this commerce.
Fairness-only put-call ratios are all of the sudden blended of their outlook. Each had not too long ago curled upward, thereby elevating the likelihood that they could roll over to promote alerts. Nevertheless, the normal ratio stays on a purchase sign after making a brand new relative low yesterday.
The weighted ratio, although, has moved greater and is now on a confirmed promote sign (confirmed by our pc evaluation packages). Hardly ever, these can reverse, so we’ll await affirmation that each ratios are in settlement earlier than performing on this probably new promote sign.
Market breadth deteriorated badly in the course of the promoting on Aug. 19 and 22, and in consequence, each breadth oscillators have rolled over to promote alerts. They continue to be in that state presently. That is our shortest-term indicator and thus can flip forwards and backwards shortly, however it has a viable observe document, so this promote sign might be acted upon.
New 52-week highs on the NYSE proceed to lag (there have been solely 38 yesterday). New lows are exceeding the variety of new highs, so this indicator stays bearish for shares.
VIX has risen because the market has fallen. To start with, that has put VIX
again into “spiking” mode. A brand new “spike peak” purchase sign will likely be confirmed when VIX closes at the very least 3 factors under the best value that it has reached whereas in “spiking” mode. Up to now, that highest value is 24.86. We have now not had a “spike peak” purchase sign since mid-June.
Countering that bullish information to some extent is the truth that VIX is approaching its still-rising 200-day transferring common. If VIX had been to shut above that 200-day MA, it could terminate the intermediate-term development purchase sign that not too long ago went into impact. So, we will likely be getting alerts from VIX quickly, however it’s not clear whether or not there’ll merely be the “spike peak” purchase sign or a conflicting promote sign as effectively.
The assemble of volatility derivatives continues to be a modestly optimistic indicator for the inventory market. That’s as a result of the time period buildings of the VIX futures and of the CBOE Volatility Indices slope upward, and the VIX futures are buying and selling at quite massive premiums to VIX.
In abstract, we’re sustaining a “core” bearish place in step with the persevering with downtrend that’s in place on the SPX chart. Along with that, we’ll commerce the person alerts as they happen — each purchase and promote — from the opposite indicators.
New suggestion: Potential “spike peak” purchase sign
As famous above, VIX is in “spiking” mode. Meaning it has risen greater than 3.00 factors (utilizing closing costs) over a three-day interval. Particularly, that occurred on Aug. 22. It would generate a purchase sign (for the inventory market) when it closes at the very least 3.00 factors under the best value that it reached whereas in “spiking” mode.
Up to now, that purchase sign has not been confirmed. The very best value that VIX has reached is 24.86 on Aug. 24. If that’s not exceeded, then a purchase sign will happen when VIX closes under 21.86. The buying and selling system that we constructed round VIX “spike peaks” has been a profitable one for a few years, so we wish to take this commerce when it confirms:
IF VIX closes at the very least 3.00 factors under the best value it has reached from August 24th and going ahead,
THEN Purchase 2 SPY Oct (7th) at-the-money calls
And Promote 2 SPY Oct (7th) calls with a placing value 15 factors greater.
This commerce could be stopped out if VIX went again into “spiking” mode. In any other case, will probably be held for 22 buying and selling days — a few month.
New suggestion: Cano Well being
Possibility quantity in Cano Well being Inc.
has continued to extend in response to information that Owl Creek Asset Administration had despatched a letter to the CANO board of administrators strongly urging the corporate to pursue a sale to a strategic purchaser. Inventory quantity patterns are optimistic and enhancing. There’s help at 5.25.
Purchase 6 CANO Oct (21st) 7 calls
At a value of 1.45 or much less.
Comply with-up motion
All stops are psychological closing stops until in any other case famous.
We’re going to implement a “normal” rolling process for our SPY
spreads: In any vertical bull or bear unfold, if the underlying hits the brief strike, then roll the complete unfold. That might be roll up within the case of a name bull unfold, or roll down within the case of a bear put unfold. Keep in the identical expiration, and maintain the space between the strikes the identical until in any other case instructed.
Lengthy 10 CRNT Sept (16th) 2.5 calls: Aviat Networks (AVNW) has bid a value of basically $3.08 for CRNT, however CRNT shouldn’t be serious about promoting. We rolled to September final week. Proceed to carry.
Lengthy 2 AAPL Sep (16th) 170 calls had been rolled up once more when AAPL traded at 170. Roll up once more – to the Sept (16th) 180 calls — if AAPL trades at 180 at any time. The put-call ratio seems like it’s starting to roll over, so set a cease right here: promote these calls if AAPL closes under 166.
Lengthy 1 SPY Sept (16th) 426 name and Brief 1 SPY Sept (16th) 439 calls: Spreads had been initially purchased on July 21, when a number of indicators generated purchase alerts. Then they had been rolled up and ultimately out. We’ll cease ourselves out of this commerce if the equity-only put-call ratios roll again to promote alerts.
Lengthy 3 MRO Oct (21st) 24 calls: We’ll maintain this place so long as the put-call ratio for MRO stays on a purchase sign.
Lengthy 1 SPY Sept (16th) 414 name and brief 1 SPY Sept (16th) 429 name: This was purchased in step with VIX starting to development down on Aug. 4. We’ll maintain it so long as VIX doesn’t cross again above its 200-day transferring common. Particularly, cease your self out if VIX closes above 24.60 for 2 consecutive days.
Lengthy 2 OIH Sept (16th) 230 calls and brief 2 OIH Sept (16th) 250 calls: We’ll maintain this place so long as the weighted put-call ratio for OIH stays on a purchase sign.
Lengthy 0 SPY Sept (sixteenth) 423 name and Brief 0 SPY Sept (sixteenth) 438 name: This place was stopped out when SPX closed under 4160 on Aug. 22.
Lengthy 3 SGFY Sept (16th) 22.5 calls: We’re holding with no cease, in an effort to see if anybody does submit a bid for SGFY. There’s nonetheless no bid, however there are supposedly now extra events, as United Well being Group (UNH), Amazon (AMZN), CVS Well being (CVS) and Possibility Care Well being (OPCH) are all rumored to be serious about buying SGFY, with the best bid rumored to be round $30 (UNH). Inventory quantity patterns are very sturdy. There’s help at 23.
Lengthy 1 SPY Oct (21st) 426 put and Brief 1 SPY Oct (21st) 396 put: That is our “core” bearish place. Cease your self out if $SPX closes above 4330 (be aware change in cease value).
Lengthy 2 SGEN Sept (16th) 170 calls and Brief 2 SGEN Sept (16th) 185 calls: This unfold was purchased after rumors of a takeover by MRK had been spreading. Maintain these spreads with no cease.
Ship inquiries to: [email protected].
Lawrence G. McMillan is president of McMillan Evaluation, a registered funding and commodity buying and selling advisor. McMillan might maintain positions in securities really useful on this report, each personally and in shopper accounts. He’s an skilled dealer and cash supervisor and is the creator of the bestselling e-book “Options as a Strategic Investment“.
Disclaimer: ©McMillan Evaluation Company is registered with the SEC as an funding advisor and with the CFTC as a commodity buying and selling advisor. The knowledge on this publication has been rigorously compiled from sources believed to be dependable, however accuracy and completeness usually are not assured. The officers or administrators of McMillan Evaluation Company, or accounts managed by such individuals might have positions within the securities really useful within the advisory.