View: In the short term, the stock market is range bound. Don’t expect it to last long.

The US stock market, measured by the S&P 500 SPX index,
Overall this week has been struggling, during what is usually a seasonally bullish period. This is what Yale Hirsch called a “Santa Claus rally” 60 years ago. It covers the time period of the last five trading days of one year and the first two trading days of the next year.

Typically, SPX rises by just over 1% during this period. With the exception of Thursday’s strong session, Santa is out of action, but there’s still time. One side effect of this system is that if the market fails to register a profit for this seven day period, this is a negative indicator going forward. Or, as Hirsch so eloquently put it, “If Santa Claus doesn’t call, bears might come to Broad and Wall.”

The SPX chart itself has resistance at 3900-3940 after breaking below 3900 in mid-December. So far there has been support around 3760-3800. Thus, the market is range-bound in the short term. Don’t expect it to last too long. In a slightly longer term, there is strong resistance to 4100 where the stock market rally failed in early December. On the other hand, there should be some support at 3700 and then at a yearly low at 3500. And of course, the biggest picture is still a bear market with downward sloping trend lines (blue lines on attached chart). from SPX).

We do No at this time you have a Macmillan Volatility Band (MVB) signal. SPX needs to go beyond +/-4σ of the “modified Bollinger Bands” to get such a signal.

There has been a lot of put-call buying lately, and because of that, the put-call ratio has steadily increased. These ratios have been selling signals for several weeks, and as long as they are trending higher, these sell signals will remain in place. This is true for all put-call ratios we follow, especially the two capital-only ratios (attached charts) and the overall put-call ratio. On Dec. 28, the CBOE stock-only put-call ratio registered a huge number, but there are some arbitrage implications here, so the number may be inflated. standard the ratio is approaching its yearly high, which means that it is definitely in the oversold zone, and suspended the ratio is also starting to approach the oversold level. However, “oversold” does not mean buying.

The breadth of the market has been poor, and therefore our breadth oscillators remain on sell signals, albeit in the oversold zone. The NYSE Latitude Oscillator tried twice to generate buy signals but ultimately failed. The stock-only width oscillator did not generate a buy signal. We are also looking at the differential of these two oscillators and this is also oversold territory after the recent failed buy signal.

One area that is improving slightly is the new 52-week highs on the NYSE. Over the past couple of days, the number of new highs has exceeded 60. This may not seem like much, and in fact it is not, but it is an improvement. However, for this indicator to generate a buy signal, the number of new highs must exceed 100 on two consecutive days. This can be a daunting task right now.

The area of ​​greatest optimism is volatility (VIX in particular). Wicks Wicks,
continues to be in its own world. Yes, it has rallied slightly over the past two days, which seems like a concession to the sharp decline in stock prices, but overall, the VIX technical signals are still bullish for stocks. There is a spike-peak buy signal, and VIX trend a buy signal is also still active. The VIX must close above its 200-day moving average (currently at 25.50 and declining) to neutralize VIX trend a buy signal and it needs to close above 25.84 (the mid-December high peak) to cancel the ‘peak of the peak’ buy signal.

build derivatives on volatility also remains bullish on stocks. The time structures of both the VIX futures and the CBOE volatility indices are tilted upwards. Moreover, all VIX futures trade at a significant premium to the VIX. These are positive signs for the stock.

As such, we continue to maintain a “major” bearish stance due to the downtrend on the SPX chart and due to the recent break below 3900. There are also negative signs from put-call and latitude ratios (although both are in oversold territory). ). The only current buy signals come from the volatility complex. So, we will continue to trade confirmed signals around this “main” position.

New recommendation: Chevron (CVX)

Chevron CVX has a new put-call ratio buy signal,
based on a state of extreme oversold. So we’re going to go long here:

Buy 1 CVX Feb (17th) 180 call

Priced at 7.20 or less.

CVX: 177.35 Feb (17th) Call 180: offer at 7.00, offer at 7.20

We will hold this position as long as the CVX put-call ratio remains on a buy signal.

Follow up action:

All stops are mental end stops unless otherwise noted.

We use the “standard” rolling procedure for our SPY,
Spreads: In any vertical bullish or bearish spread, if the underlying asset reaches a short strike then the entire spread is folded. it would be roll up in case of call-bullish spread or roll down in case of a bearish one, I put a spread. Stay on the same exhalation and keep the distance between beats the same unless otherwise noted.

Long 2 SPY Jan (20th) 375 puts and shorts Jan 2 (20th) 355 puts: this is our “primary” bearish position. As long as SPX remains in a downtrend, we want to keep the position here.

Long 2 km Jan (20th) 135 calls: based on Kimberly-Clark KMB put-call ratio,
This ratio has now moved to a sell signal, so sell these calls to close the position.

Long 2 IWM Jan (20th) 185 in-the-money calls and short 2 IWM in January (20th) 205 calls: This is our position based on the bullish seasonality between Thanksgiving and the second trading day of the new year. Exit this iShares Russell 2000 ETF IWM,
position at the close of trading on Wednesday, January 4, the second trading day of the new year.

Long 1 SPY Jan (20th) Call 402 and short 1 SPY January (20th) 417 calls: this spread was bought at the close on 13 Decemberthwhen the last signal to buy the “peak of the peak” VIX was generated. Close yourself if the VIX subsequently closes above 25.84. Otherwise, we will last 22 trading days.

Long 1 SPY Jan (20th) 389 puts and shorts 1 SPY January (20th) 364 put: this was in addition to our “main” bearish position established when the SPX closed below 3900 on Dec Stop yourself in this spread if SPX closes above 3940.

Long 2 PCAR Feb (17th) 97.20 puts: These are put on the Paccar PCAR,
were purchased on December 20thwhen they finally traded on our buy limit. We will hold these options until suspended put-call ratio corresponds to a sell signal.

Long 2 SPY Jan (13th) 386 calls and Short 2 SPY Jan (13th) 391 calls: it is a trade based on the seasonally positive “Santa Rally” time period. There is no stoppage for this trade, except for a temporary one. If SPY is trading at 391, then the entire spread increases by 15 pips on each side. In any case, close your spreads at the close of trading on Wednesday, January 4 (the second trading day of the new year).

All stops are mental end stops unless otherwise noted.

Lawrence J. McMillan is President of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may take positions in the securities recommended in this report, either in person or in client accounts. He is an experienced trader and money manager, and author of the bestselling book Options as a Strategic Investment.

Send questions to: [email protected].

Denial of responsibility: ©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. Officers or directors of McMillan Analysis Corporation, or accounts managed by such persons, may hold positions in securities recommended in the Bulletin.

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