Weekly Stock Market Commentary 9/8/17

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.

Will The Short Volatility Trade Ever Disappear? (XIV)

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.

Weekly Stock Market Commentary 9/1/2017

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.

Weekly Stock Market Commentary 8/25/17

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.

Simultaneous $VIX “Spike Peak” Buy Signals (Preview)

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.  

VXX to undergo another reverse split

By Lawrence G. McMillan

VXX will be reverse split 1-for-4, before trading begins on Wednesday, August 23rd.   It is a bit ironic that VXX is finally starting to rise so the reverse split might not be necessary, but this was probably in the “works” well before the recent announcement date.  

For existing VXX options, the striking price will remain the same, but the “shares per contract” will drop to 25 from 100.  Those existing VXX options will henceforth have the underlying symbol VXX2.■

Weekly Stock Market Commentary 8/18/2017

By Lawrence G. McMillan

$SPX has broken to new lows for this move, taking out the support at 2437. That means that a test of the 2400 level is likely in the cards. There is resistance at 2480.

Even with the relative negativity of recent movements, it is worth remembering that as long as support at 2400 holds, the $SPX chart will remain positive.

Equity-only put-call ratios have remained bearish since early August. After the buy signals from other indicators early this past week, these put-call ratios were our only remaining bearish indicators. So far, they have proven to be the most correct.

Weekly Stock Market Commentary 8/11/17

By Lawrence G. McMillan

The market averages have broken down and broken support (except for the Dow). This is the first time that can be said since this past March. We are looking at a strong possibility of a retest of the 2400 level. If that should fail, it is possible that a much more serious bearish market could develop. But as long as the 2400 support level holds, the $SPX chart will remain bullish.

The equity-only put-call ratios are both on sell signals. The WEIGHTED ratio (Figure 3) is a "cleaner" chart, and it just gave a sell signal at the close of trading on August 10th.

Weekly Stock Market Commentary 8/4/2017

By Lawrence G. McMillan

Certainly the $SPX chart is still bullish at this time, but once again $SPX is trapped in one of those tight ranges -- this time between 2460 and 2480. That range has essentially contained the action for the last twelve trading days. In the last nine months, since the election, those tight ranges have generally been resolved by an upside breakout. But until we have verification of that, it is wise to be prepared for a correction.

An Interesting Intermarket Spread (Preview) $DJX $DJT

By Lawrence G. McMillan

I’m not really big on Dow Theory because its signals seem to be rather nebulous.  Even the practitioners of the Theory cannot necessarily agree on when signals occur and when they don’t.  Supposedly Dow Theory says that “the Dow Jones Industrials ($DJX) and the Dow Jones Transports ($DJT) should confirm each other in major moves.   Trends persist until a clear reversal occurs.”  Well, try figuring out what a reversal is.  Is this one in Figure 8?  It’s the current chart of $DJX and $DJT overlaid with each other.  You can certainly see that $DJX is making new highs, while $DJT has stumbled badly.

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