These stock-market signals will tell you when it’s safe to buy again

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The S&P 500 Index (SPX) has fallen over the past week – apparently on fears of the new Omicron COVID variant – but it was really just the catalyst that exposed the weak internals of this market: breadth, call-to-call ratio and new climbs.

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We will look at each of them individually, but this market is already showing signs of being highly oversold, even though the S&P SPX,
+1.22%
Not so much below his height.

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However, oversold does not necessarily mean buy, and the market may continue to decline for some time before the buy signals are confirmed.

In the first half of November, SPX tested above 4700 several times but was unable to sustain any bullish momentum. Now, it has broken below support at 4630, confirming a Macmillan Volatility Band (MVB) sell signal in the process. That entire area of ​​4630-4700+ is now resistance.

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Support is a bit hard to define. In theory, there should be support in the general area of ​​the old high: 4525-4550. But on Wednesday, SPX closed only slightly below that. If that general support area is breached, there really isn’t much support until 4300, as the market surged so fast in October that it never found any support and fills to form a support level.

Lawrence Macmillan

The MVB sell signal is in effect, and will continue until the SPX trades at one of the +/-4σ “Modified Bollinger Bands” (MBB). It traded around -4σ on Wednesday, and will probably be today if it is far below.

Meanwhile, a realized volatility sell signal has also occurred, as the S&P’s 20-day historical volatility (HV20) has risen above 11%. It is increasing further by 14%. If HV20 drops below 9%, that sell signal will be put on hold.

The equity-only put-call ratio is now rising sharply, as put buying is increasing. They will hold on to sell signals (which were generated in mid-November) until they roll over and begin to decline. Since they are nowhere near the highs of their charts, it looks like they have more room to run before they entertain any idea of ​​buy signals.

Lawrence Macmillan

Lawrence Macmillan

The breadth of the market has been terrifying. Decreasing issues have swallowed up the issues going forward this week, but the problem started a long time ago. As a result, our breadth oscillator remains on sell signals at the moment.

However, they are deeply in oversold territory. This is potentially good news down the road, but it’s going to take several days to generate buy signals. This is the best sell these oscillators have since the pandemic of March 2020.

As far as the cumulative width indicators are concerned, I just want to point out one thing. We have always said that, if all the Cumulative Width Indicators and the SPX are simultaneously creating new all-time highs (as they did on November 8th), then it is not predictable further gains in the stock market. Most technicians would disagree with me on that point, but here’s my proof: Look what’s been on the market since November 8th!

The new 52-week low of the NYSE is now dominating the new 52-week high. It’s even worse in the context of the NASDAQ and “stocks only”. The fact that the SPX is only 4% off its high and yet hundreds of stocks are hitting new 52-week lows is strong evidence that some large-cap stocks have long been “average” stocks. problems are covered. – Maybe from last June.

This indicator will remain negative until the new high of the NYSE exceeds the new low for two consecutive days.

The implied volatility indicator has generally been a “friend” of the SPX – refusing to generate anything but bullish signals for months and months. But it’s over. wicks wicks,
-4.88%
Currently in “spiking” mode, which will eventually lead to VIX “spike peak” buy signal in the near future.

However, more ominous is the fact that the 20-day moving average of the VIX has crossed above the 200-day moving average and the VIX is also above the 200-day. That crossover is the green circle on the attached chart. This is an intermediate-term sell signal that will remain in effect until the VIX or its 20-day MA breaks back below the 200-day MA.

Lawrence Macmillan

The creation of volatility derivatives is the last bastion of bullish holdouts. Front-month December VIX futures have not moved above second-month January VIX futures. That means bullish. Also, the term structure of VIX futures slopes upward. That too is a positive sign for the stocks. Lastly, the CBOE Volatility Index term structure is also mostly sloping upwards. So this is one area that has refused to join the bearish indicator attack.

There is another positive thing: it is believed that this is the seasonal bullish period of the year (between Thanksgiving and the start of the new year). This may still be the case, but this seasonal bullish period is not off to a good start.

In short, we have mostly bearish positions. This oversold market will generate some buy signals soon, and we will definitely trade them. However, we will not attempt to pursue or extend this bearish market phase for now. We need confirmed buy signals to take a bullish position, and none of them at the moment.

New Recommendation: Exelon Corp.

A new put-call ratio in Exelon EXC has been given a sell signal,
+1.09%,

Buy 2 EXC Jan (21scheduled tribe) 55 puts

2.90 or less.

EXC: 53.27 Jan (21 .)scheduled tribe) puts: 2.90 . presented on

If bought, we will hold this position as long as the weighted put-call ratio chart is on the sell signal.

Lawrence Macmillan

New Recommendation: Centen Corp.

A new put-call ratio sell signal has arrived at Centene CNC,
+0.68%,

Buy 2 CNC Jan (21 .)scheduled tribe) 70 put

3.90 or less.

CNC: 70.50 Jan (21.)scheduled tribe) 70 puts: 3.60 bid, 4.10 . offered on

If bought, we will hold this position as long as the weighted put-call ratio chart is on the sell signal.

Lawrence Macmillan

follow up action

All stops are mental closing stops unless otherwise noted.

Long 3 PCAR Dec (17.)th) 90 calls: These calls are bought and then rolled for the packer PCAR corresponding to the weighted put-call ratio buy signal,
+1.99%,
Which has now turned on a sell signal. Sell ​​these calls and exit the position.

Long 2nd ADP Dec (17.)th) 235 Call: Here the put-call ratio buy signal is still tied to the buy signal.

Long 0 ccj Dec (17.)th) 26 calls: This position was stopped on 26 November.

Long 0 SPY Dec (17 .)th) 469 Call: SPY calls were bought at new highs on an upward breakout (after reversal from a long put bear spread) and then plunged higher. The call was closed on 26th November, when SPY SPY,
+1.29%
Closed below 464.

Long 0 SPY Dec (17 .)th) 469 Call: This was our “core” long position. The call was closed on 26 November, when the SPY closed below 464.

Long 1 SPY Dec (10 .)th) 469 Put and Short 1 SPY Dec (10 .)th) 449 put: This Spread Width Oscillator was bought in line with a sell signal, which remains in effect. Due to the highly oversold position of the width oscillators, roll down this entire spread by 20 points on each side.

Long 1 SPY Dec (10 .)th) 469 Put and Short 1 SPY Dec (10 .)th) 449 put: This spread was bought only in line with the sell signals of the equity put-call ratio. If the ratio starts falling again this trade will be closed. We will keep an eye on the situation and give a weekly report.

Long 1 SPY Dec (10 .)th) 469 Put and Short 1 SPY Dec (10 .)th) 449 put: The spread was bought with a sell signal at new highs versus new lows. Pause yourself if the new high of the NYSE is higher than the new low of the NYSE for two consecutive days.

Tall 2 cms December (17 .)th) 60 calls: These were purchased on November 22, when CMS Energy stock CMS,
+1.02%
Finally closed above 61.50. This buy is based on the buy signal weighted put-call ratio in the CMS, and this buy signal remains in effect.

Long 3 IWM Jan (21 .)scheduled tribe) 232 Calls: This is a seasonally bullish trade at the end of the year, which has had a bad start. For now, keep holding without stopping.

Tall 1 Detective December (17.)th) 459 Put and Short 1 SPY Dec (17 .)th) 434 put: This position was taken in line with the confirmation of the MVB sell signal of 26 November. It will be closed by closing above the +4σ band. If $SPX trades in the -3σ band it will reach its target. We will update that status weekly.

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 a seasoned trader and money manager and is the author of the bestselling book ” Options as a Strategic Investment,

Disclaimer: © Macmillan Analysis Corp. 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 the accuracy …

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