By Lawrence G. McMillan

$SPX had made either new intraday all-time highs or closing all- time highs for eight consecutive trading days until yesterday, September 21st, when it did not. The chart remains bullish, with major support at 2480.

Equity-only put-call ratios remain on buy signals. There is a slight wiggle in the standard chart (Figure 2) but the computer analysis laughs that off. Both of these ratios are declining rapidly, as call buying has been dominant since the September 11th breakout by $SPX.

By Lawrence G. McMillan

One system that we normally trade is the one that says the market declines the week after September expiration.  This definition of “expiration” goes back to the days before weekly options, so it refers to the third Friday of the month (today, September 15th).  Last year, this system did not work, but it has produced profits in 22 of the last 27 years.  The track record is shown below.  Note that a negative number is “win” (i.e., the market went down) while a positive number is a “loss.”

By Lawrence G. McMillan

On Monday, September 11th (a date we will never forget), $SPX broke out to new all-time highs. There hasn't been a lot of follow-through after that, but those highs have been retained.

The importance of these new highs is that they distinctly turn the charts positive. The $SPX chart now has support at 2480 (the old highs), as well as at 2460 and every 20 points down, all the way to 2400.

This most recent upside breakout has generated a lot of call buying in the past week. As a result, all of the put-call ratios are dropping sharply, which is bullish. Both equity-only put-call ratios are on strong buy signals now (Figures 2 & 3).

By Lawrence G. McMillan

Late last week, $SPX broke out above a minor downtrend line, accompanied by buy signals from several indicators. It appeared that a move to new all-time highs was imminent.

However, those plans have stalled. $SPX did challenge the previous highs at 2480 but was unable to break through. This week it has struggled. So, at this time, the $SPX chart needs to break out over 2480 to be classified as strongly bullish. Otherwise it's in a trading range, from roughly 2400 to 2480.

The equity-only put-call ratios have diverged. The standard ratio is on a buy signal, but the weighted ratio stubbornly clings to a sell signal.

By Lawrence G. McMillan

We have written many times about the “Big (Volatility) Short.”  It is a very profitable trade, for the most part.  It comes about because of the upward-sloping term structure of the $VIX futures during a “normal,” bullish market.  In its simplest, original form, one merely shorts the $VIX futures a month or two out in time and sits back, waiting for the passage of time to bring the futures prices down to meet $VIX at expiration.  In effect, the “time decay” of the premium in the $VIX futures produces a profit for the short sellers of $VIX futures.

By Lawrence G. McMillan

$SPX has staged a rally that began on Tuesday's opening (August 29th) and has lasted three full days to date. The result was a breakout through the downtrend line that had been in place (see Figure 1), and that has turned the $SPX chart bullish.

On the downside, the first support level is 2440. Tuesday's rally has also left 2428 as a support area, to go along with 2420, and then the major support area at 2400. A close below 2440 be a enough to negate the current upside breakout, in my opinion.

By Lawrence G. McMillan

Despite the media euphoria over recent rally days, the $SPX chart remains short-term negative because of the downtrend lines (see Figure 1). So far, this is showing no signs of being more than a short-term correction, though. It would take a breakdown through major support at 2400 in order to turn the $SPX chart truly bearish.

Equity-only put-call ratios continue to move sharply higher on their charts. There has been a great deal of put buying since this corrective phase began in early August. These ratios will remain on sell signals as long as they continue to rise.

By Lawrence G. McMillan

Early this week, a $VIX “spike peak” buy signal was issued when $VIX closed below 14.28 (more than 3.00 points from the intraday high of 17.28 set last Friday, August 11th).  The trading system that we have built around $VIX over the years calls for holding this position (i.e., being “long” the market) for 22 trading days, unless $VIX closes back above that intraday high (17.28, in this instance), in which case the position would be stopped out.  Over the years, this system has produced roughly 60% winners, with winning trades being about 1.5 times the size of losing trades.  Those are the statistics of a nicely profitable system.