Here’s why you shouldn’t be spooked by the S&P 500’s pullback

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The S&P 500 index is back in its trading range, in which it could not sustain prices above support at 4700. Therefore resistance is now 4700 in the SPX chart with a series of support levels at 4700, 4500, 4530 and 4580. Support levels are in chronological order, they represent a kind of rising trend line.

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Nevertheless, failure to hold above support at 4700 presents some problems. So, we are no longer saying that SPX SPX,
-0.24%
The chart has a “bullish” position. However, it would not turn seriously negative unless it were to break below the low of 4500 in early December.

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Lawrence Macmillan

Equity-only put-call ratios are currently not in agreement. The weighted ratio has remained at a sell signal since rising last week. The standard ratio had started to rise but has now fallen to a new relative low for the move. This cancels the recent sell signal – thereby restoring the initial buy signal at the end of December.

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In any case, these ratios remain high on their charts, which is usually in oversold territory, even if both are not outright buy signals.

Lawrence Macmillan

Lawrence Macmillan

Market breadth remains poor as the reflex rally this week has not been with broad consolidation except for one trading day. As a result, our breadth oscillator remains on sell signals.

The “January Effect”, which has been occurring for years in December, is believed to describe a period when small-caps outperform large-caps. That hasn’t happened this year, because the interiors of this market are terrible. Nothing shows that more than the constant bad breadth in this market.

Measuring new 52-week high versus new 52-week low earlier this week was highly oversold. But with the current bullish momentum in the market, it has bounced back, and for the past two days on the NYSE, new highs have exceeded new lows. So that this indicator comes back to the bullish position.

NASDAQ data continues to show more new lows than new highs, however — again representing the more downside of the broader market versus large-caps (NYSE in this case).

VIX Volatility with respect to VIX,
+3.29%,
There have been some positive signs. First, a new VIX “Spike Peak” buy signal was registered on 10 January. This will remain in effect for 22 trading days, until the VIX closes above the most recent high at 23.33 (which would stop the buy signal).

Furthermore, the VIX closed below its 200-day moving average, removing the “downtrend” position from the VIX chart. This alone is not a buy signal, but it cancels the recent sell signal.

Lawrence Macmillan

Continuing its role as one of the fastest in our indicators, volatility derivatives continue to be created. The terms structure has an upward slope, and VIX futures are trading at a premium to the VIX.

In short, there hasn’t been a lot of follow-up on either side of this market. It looked like the bulls made their way out when the SPX broke above 4700, but it stopped at 4800 and fell back. Then it looked like the bears would take control once the SPX fell towards support at 4500. But then it reversed back upwards.

So the trading range action that has been going on since November will continue to rule. We are not taking a “core” position due to this “Trading Range” position, but we will be trading the signals separately from our indicators as they are confirmed.

New recommendation: VIX ‘spike peak’ buy signal

As mentioned above, this buy signal occurred on January 10, and the SPX has been higher since then. But in the long and successful history of this indicator, there may still be a lot of room.

Buy 1 SPY Feb (18 .)th) 472 call

and sell 1 SPY Feb (18 .)th) 485 call

Detective: 472.05 Detective February (18 .)th) 472-485 CALL BULL SP CURRENTLY 6.30 . available on

New Recommendation: 51job

Last June, Private Equity proposed the acquisition of 51job JOBS,
-0.17%
At a price of $79.05. The stock was trading near that price for some time, but then began to fall back, as Chinese regulations seemed to be a problem for the deal. The stock was trading at 45. Now private-equity buyers have revised their offer and are now offering $57.25 in cash. Obviously this offer has a better chance of Chinese approval. The stock jumped 50% on the news, but there’s still a fairly wide spread between the current price and the acquisition price.

Buy 2 Jobs April (14 .)th) 50 calls

4.00 or less.

Job: 50.13 April (14.)th) 50 calls: 3.50 bid, 6.00 . offered on

If a buy is made, we will be non-stop while the acquisition process is completed.

Lawrence Macmillan

follow up action

All stops are mental closing stops unless otherwise noted.

Long 0 cms Jan (21 .)scheduled tribe) 65 calls: This buy was based on a weighted put-call ratio buy signal in CMS Energy CMS,
+1.04%,
and closed on January 11, when CMS closed below 64.

Long 0 SPY Jan (21 .)scheduled tribe) 471 call and short 0 SPY Jan (21 .)scheduled tribe) 481 Call: This was the spread of our “Trading Range”. It was closed on January 10, when the SPX closed below 4690.

Long 2 EMN Jan (21.)scheduled tribe) 120: As long as these acquisition rumors go on, don’t stop.

Tall 1,000 ftk: Set closing stop at 0.60.

Long 2 SPY Jan (28 .)th) 466 Put and Short 2 SPY Jan (28 .)th) 441 puts: This position was taken in line with the Breadth Oscillator sell signal. Those sell signals remain in effect.

Long 2 erna February (18.)th) 90 calls: We bought these as Arena Pharmaceuticals spread in the acquisition deal of Arena,
+0.23%
by Pfizer PFE,
-1.79%
Was too wide in our opinion. Keep wearing it.

Send questions to: [email protected]

Lawrence G. Macmillan is the president of Macmillan Analysis, a registered investment and commodity trading advisor. Macmillan may hold positions in the 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 bestselling book.Options as a Strategic Investment,

Disclaimer: © Macmillan 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 Macmillan Analysis Corporation, or accounts managed by such individuals, may have positions in advisory recommended securities.

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