Powerful Sell Signal Setting Up

The bulls finally took total control for a day as nearly every major average broke out to an all-time high (the one exception – the NASDAQ Composite – is within a mere 5 points of a an all-time closing high). $SPX advanced so swiftly that it is now above the +4σ “modified Bollinger Band.”  As such, a sell signal will definitely occur in the near future, when $SPX closes back below the +3σ Band.  Today, that would require $SPX to fall to 2227 – a drop of 14 points.  The +3σ Band is moving higher daily, though, so that number will change as the days go by.  An mBB sell signal will be a significant negative, but it is not necessarily an immediate sign of the top of the market.  The last two mBB sell signals were in November 2014 and October 2015.

The Current State of Option Oriented Indicators 11/29/16 Video

The recording of McMillan Analayis Corp. President, Lawrence G. McMillan's recent webinar with Investor Inpsiration is now available.  In this webinar recordied on 11/216, McMillan touches on the following points:

Weekly Stock Market Commentary 12/2/16

By Lawrence G. McMillan

$SPX has struggled this week, but it remains above the rising 20-day moving average, so the $SPX chart is still bullish. There is support at 2180, but the more important support is at 2170. As long as $SPX is above that level, the chart will be bullish.

The put-call ratios are generally bullish at this time. The weighted equity-only put-call ratio (Figure 3), gave a buy signal just about the time of the election, and it has remained on that buy signal ever since. The standard ratio (Figure 2), however, ran into some problems along the way, but it is now back on a buy signal as well.

Weekly Stock Market Commentary 11/25/16

By Lawrence G. McMillan

All systems are in bullish modes at this time.  $SPX has broken out to new all-time highs, finally catching up to The Dow, Th Russell 2000, the Value Line Composite, and the NASDAQ Composite, which had already done so.  There is support in the 2180 area.

Equity-only put-call ratios are on buy signals, as is the Total put-call ratio.  These are not strong buy signals, by historic measurements, but suffice for now.

Breadth has been very strong on this rally, and with today's action, cumulative "stocks only" breadth has made a new all-time high as well.  This is important confirmation.  Both breadth oscillators are on buy signals.

Craziness In Water Transportation and Coal Stocks (DRYS, BTUUQ)

We have written about Peabody Coal (BTUUQ) a couple of times previously – amazed at the rapid advance and short squeeze that occurred there.  That stock had a second surge, post-election, as did many other coal stocks.  But the action there pales in comparison to what’s happened in the “Water Transportation” stocks this week.  These include the big oil tanker companies and the general shipping of things on the ocean.  The whole sector has been very strong, but the “king” is Dry Ships (DRYS).  The stock was up 1500% in just a few days and would have been higher except for the fact that trading was halted on Wednesday.  But yesterday it lost 85% of its value in one day!

Thanksgiving Trading System (Preview)

By Lawrence G. McMillan

Even though we are not planning a full newsletter next week because I’ll be on a ship (and I don’t know how good the internet connection will be, either), we do want to update our Thanksgiving-based trading systems.

For the sake of brevity, we won’t detail the “3 days before Thanksgiving” or the “day after Thanksgiving” trading systems – if you want to call them that.  They are not profitable, no matter how hard you want to stand on your head to interpret the data.

Breadth Oscillator Differential Signals (Preview)

By Lawrence G. McMillan

Many of our subscribers are familiar with the breadth oscillator differential buy signals that occur in deeply oversold markets – when the “stocks only” breadth oscillator falls far faster than the NYSE-based one.  But recently, in the wake of the market strength since the election, the “stocks only” breadth oscillator has risen far faster than the NYSE-based oscillator.  This is unusual.  What does it mean for the markets when this happens?  First, let’s offer a quick review of what the breadth oscillators are, and how we calculate them.

Weekly Stock Market Commentary 11/18/16

By Lawrence G. McMillan

The bulls had an enjoyable week, although it was not a spectacular one. The post-election rally has held together for the most part, except for a few sectors which are not benefitting from the anticipated "infrastructure boom."

$SPX edged to within 8 points of a new all-time yesterday, and the NASDAQ Composite was equally close. The Dow Jones 30 Industrials, the Russell 2000 Index, the Midcap 400 Index, and the Value Line Composite Index have already made new all-time highs.

Buy signals from both equity-only put-call ratios are officially confirmed. The standard ratio's buy signal occurred prior to the weighted, but both are in sync now.

Strategies For Volatility: Calendar Spreads (04:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995.

When volatility increases, the option prices increase. This simple statement is the main philosophy behind owning options during periods of low volatility, especially if you think there is a fair chance of a price or volatility explosion occurring shortly after you buy your options. A strategist will generally prefer to own both puts and calls so that he can make money if the market moves up or down. Thus, owning a straddle (a put and call with the same striking price) or a combination (a put and a call with different striking prices) are the two simplest strategies that take advantage of increasing volatility. Another is the backspread, which we have been describing in a fair amount of detail all through the spring of this year. We currently have four backspread positions in place. We prefer the backspread to a straddle or a combination because it is easier to adjust the backspread as you go along, if you want to keep the position more or less neutral to market movement.

Reverse Calendar Spreads (09:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 12 on June 22, 2000.

The reverse calendar spread strategy is not one that is employed too often, probably because the margin requirements for stock and index option traders are rather onerous. However, it does have a place in an option trader’s arsenal, and can be an especially useful strategy with regard to futures options. The strategy has been discussed before in The Option Strategist, and it is apropos again because it can be applied to the expensive options in the oil and natural gas sectors currently.

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
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