Stock Market Analysis

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This holiday-shortened report contains market comment and follow-up action on existing positions. The full, regular report will resume next week.

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Stock Market Analysis

The stock market, as measured by the S&P 500 Index (SPX), made new relative highs for the year so far and for this leg of the bullish market that began last October. This indicates that the market is on an upward trend, with potential resistance levels at 4510 and 4630. The latter level, in particular, could be a strong barrier for further gains. It’s worth noting that there have been a couple of gaps on the SPX chart, which have been filled by the recent pullback to the 4400 level.

If the market continues to decline below the support level at 4330, it would suggest a bearish signal.

McMillan Volatility Band (MVB)

The MVB sell signal remains in place, indicating caution in the market. While other indicators are currently overbought and may produce sell signals in the future, the MVB trade target is currently set at 4270, which is the lower -4σ Band and is rising.

Equity-Only Put-Call Ratios

Equity-only put-call ratios continue to decline, suggesting a buy signal. However, they have reached the bottom of their charts and are now considered extremely overbought. A sell signal will only occur when these ratios start trending higher.

Breadth Indicator

Breadth in the market has been strong for the past week or so, with both breadth oscillators currently on buy signals. However, these indicators have been switching between buy and sell signals frequently in recent months, so we are not making any trades based solely on these signals at this time.

New 52-Week Highs

New 52-week highs on the NYSE have consistently outnumbered new 52-week lows. This indicates a bullish state for the market, which will remain until new lows exceed new highs for two consecutive trading days.

VIX Indicates Positive Trend for Stocks

The VIX (VIX, +8.67%) has maintained a consistent level around 14 for more than a month, signifying a continued buy signal for the trend. As long as the VIX does not rapidly rise by at least 3.00 points within a three-day period, there is no cause for concern in the stock market.

The construct of volatility derivatives also supports a bullish outlook for stocks. Both the VIX futures and the CBOE Volatility Indices show upward-sloping term structures.

To align with our “core” bullish stance, we are adjusting trailing stops and raising strikes when appropriate. Currently, the only sell signal we have is the MVB sell signal, but we will trade any confirmed signals that complement our “core” position.

Follow-Up Action:

All stops are mental closing stops unless otherwise noted.

When dealing with SPY spreads, we follow a standard rolling procedure: in any vertical bull or bear spread, if the underlying asset hits the short strike, we roll the entire spread. For a call bull spread, we roll up, and for a bear put spread, we roll down. We maintain the same expiration and keep the distance between the strikes unless instructed otherwise.

Specific Actions:

  1. Long 3 AMAM July (21st) 12.5 calls: Increase the trailing stop on AMAM (AMAM, -2.47%) to 14.20.

  2. Long 800 KOPN KOPN, -4.68% : The stop remains at 1.70.

  3. Long 2 SPY July (21st) 439 calls: This serves as our “core” bullish position. Exit this trade if SPX (SPX, -0.79%) closes below 4330. The position has been rolled twice. Roll up whenever the long SPY option is at least 6 points in-the-money.

  4. Long 1 SPY July (21st) 439 call: Purchased based on the “New Highs vs. New Lows” buy signal. Exit this trade if, on the NYSE, new lows outnumber new highs for two consecutive days. The position has been rolled up twice. Roll up whenever the long SPY option is at least 6 points in-the-money.

Long 2 PFG July (21st) 70 calls: Roll up to the July (21st) 75 calls.

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

Long 1 SPY Aug (18th) 434 put and Short 1 SPY Aug (18th) 404 put:

This position was established in line with the MVB sell signal of June 23rd, when SPX closed below 4151. Hold until SPX trades at the -4σ Band (the profit “target”) or trades above the +4σ Band, which would stop out the trade.

Long 10 VTRS August (18th) 10 calls:

We will hold this position as long as the weighted put-call ratio for VTRS is on a buy signal.

Long 5 CCL Aug (18th) 17 calls:

Raise the stop to 16.80.

Long 2 PRU Aug (18th) 87.5 calls:

Continue to hold PRU calls as long as the weighted put-call ratio remains on a buy signal.

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