Bulls control the stock market now and a new S&P 500 high is within reach

The stock market, as measured by the S&P 500 Index
has decisively broken out to the upside. This rally began in late October, initially spurred by a deeply oversold condition and a favorable seasonal pattern. That brought SPX up to nearly the 4400 level, where it faced resistance from three different factors. But late last week, it managed to close above there, signaling a new bullish state. This week, favorable CPI numbers and heavy short-covering have accelerated the rally.

SPX has already risen to the first resistance level at 4510 (the mid-September highs). There is also another resistance level at 4540 before the 2023 highs at 4600 are encountered. If those are all exceeded, then the levels from early 2022 — including the all-time high at 4800 — come into play. 

The speed of the advance could be a bit of a problem. Yes, there is solid support at the 4400 level — the area which launched this latest move. But there are gaps all over the SPX chart. In fact, there are four of them. The most recent would be filled on a pullback to 4420, and it is likely that one will be filled. The others are below 4400, with the lowest (and oldest) one being down at 4100. It does not appear those will be filled anytime soon, but most gaps are usually filled on SPX, so that might be something that takes place next year.

The most recent McMillan Volatility Band (MVB) buy signal, which occurred on October 31st has already successfully reached its target of the +4σ Band. In fact, now that SPX has risen above that Band, a new “classic” sell signal will occur soon. It remains to be seen if that “classic” sell signal will become a full-fledged MVB sell signal or not. We do not trade the “classic” signals, only the MVB signals. The “classic” sell signal will occur when SPX closes below the +3σ Band – which today would mean an SPX close below 4440.

Equity-only put-call ratios are finally on the same page: both the standard and weighted ratios are on buy signals. They will remain there until they roll over and begin to rise. There was a slight “wiggle” upward in the standard ratio, but our computer analysis programs are “saying” that this ratio is still on a buy signal (for stocks). There have been arbitrage-related distortions — especially of the weighted ratio — but for now these signals are bullish.

Breadth has been swinging wildly back and forth. At the current time, the breadth oscillators are both on buy signals (or more appropriate, recent sell signals were stopped out), and they are in overbought territory. November 14th was a “90% up day,” which is a strong overbought condition. It is normally a good thing for these breadth oscillators to be overbought when SPX is making a new upside breakout. Frankly, I would have thought they would be more overbought than they are, because at current levels, they could easily swing back to sell signals again. 

The number of New Highs on the NYSE rose above 100 one day this week and followed that up with 92 New Highs the next day. But that wasn’t quite enough for a buy signal — there have to be 100 or more for two consecutive days. So, this indicator remains in a neutral state for now.



has declined during this rally, but it seems reluctant to drop below the 13-14 area, which would be the lows for the year. VIX is largely driven by the price of SPX puts, and it seems that “big money” is still buying puts at these relatively cheap prices. Thus, VIX can’t move lower. It is interesting to note that these large traders still have some worries about this market, despite the recent upside breakout.

The “spike peak” buy signal (green “B” on the accompanying VIX chart) remains in place. Those signals last for 22 trading days (about a month), so it has another week or more to run. There is no trend of VIX signal in place, but as you can see from the chart, the 20-day Moving Average of VIX is about to cross below the 200-day MA. With VIX also below the 200-day MA, that would create a trend of VIX buy signal. The last one of those was November 2022, and it lasted quite a long time. However, that one came from a crossover level of 26, and this one would be occurring at a crossover level of 17. That is, there was a lot more room for VIX to decline from 26 than there is from 17.

The construct of volatility derivatives is back to a solidly bullish outlook for stocks. The term structures slope upward, and the VIX futures are trading at large premiums to VIX. The Dec VIX futures are the new front month, so the warning sign would be if they were to rise in price above the Jan VIX futures. That is not remotely close to happening at the current time.

With the SPX breakout, we are now holding a “core” bullish position and will trade other confirmed signals around that.

New recommendation: Bio-Techne Corp. (TECH)

A new weighted put-call ratio buy signal has occurred in TECH


It has been in a steep downtrend, but recent activity has seen a bottoming formation — in the form of higher highs and higher lows — taking place.

Buy 2 TECH Jan (19th) 60 calls in line with the market.

TECH: 60.70 Jan (19th) 60 call: 3.30 bid, offered at 4.20

We will hold these calls for as long as TECH’s weighted put-call ratio is on a buy signal.

New recommendation: Kraft-Heinz (KHC)

In a similar manner, a new weighted put-call ratio buy signal has been confirmed in KHC


Here, the stock has also been in a long downtrend and now has a small bottoming formation in place.

Buy 4 KHC Jan (19th) 32.5 calls in line with the market.

KHC: 33.60 Jan (19th) 32.5 call: 1.52 bid, offered at 1.58

We will hold these calls as long as the weighted put-call ratio for KHC remains on a buy signal.

Follow-up action: 

All stops are mental closing stops unless otherwise noted.

We are using a “standard” rolling procedure for our SPY spreads: in any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread or roll down in the case of a bear put spread. Stay in the same expiration and keep the distance between the strikes the same unless otherwise instructed. 

Long 1 SPY
Dec (15th) 420 put: Originally bought in line with the equity-only put-call ratio sell signals. It was rolled down several times, prior to the most recent market rally. This was our “core” bearish position, but it should be sold now that SPX has broken out to the upside.

Long 2 expiring EQR


Nov (17th) 52.5 puts: Technically, the weighted put-call ratio here is still on a sell signal, but the ratio has reached extremely oversold territory, so we are not going to roll this put. Allow it to expire, closing out a profitable trade.

Long 3 expiring XLE
Nov (17th) 86 puts:  We will hold as long as the weighted put-call ratio of XLE remains on a sell signal. Roll to the Dec (15th) 85 puts. If XLE trades at 80, roll down to the Dec (8th) 80 puts.

Long 1 SPY Dec (1st) 448 call: This spread was bought in line with the CBOE Equity-only put-call ratio buy signal. Per our previous instructions, the original Nov (17th) 434-452 call bull spread was roll to these Dec (1st) 448 calls when SPX gapped up on November 14th. Roll the call up if it becomes at least 8 points in-the-money. We are holding without a stop for now. 

Long 3 expiring ES


Nov (17th) 60 calls: We will hold this position as long as the weighted put-call ratio chart for ES remains on a buy signal. Roll to the Dec (15th) 60 call.

Long 4 XLP
Dec (1st) 68 calls:  These calls were finally bought on Nov 2nd, when XLP closed above 68.04, after a couple of weeks of trying. Raise the trailing closing stop to 68.80.

Long 1 SPY Dec (15th) 428 call and Short 1 SPY Dec (15th) 443 call:  This position was bought in line with the recent MVB buy signal. Since SPX has traded above the +4σ Band, this spread should be sold (taking a nice profit).

Long 1 SPY Dec (8th) 436 straddle (i.e., long one 436 call and long one 436 put): This position has improved nicely with the upside breakout in the market. Sell entire straddle now and replace it as follows: Buy 1 SPY Dec (8th) at-the-money call. Roll the call up if it becomes 8 points ITM. Since the position has been rolled up, hold without a stop for now. This is, in essence, our “core” bullish position.

Long 5 AVPT


Dec (15th) 7 calls: Raise the trailing closing stop to 7.25.

All stops are mental closing stops unless otherwise noted.

Send questions to: lmcmillan@optionstrategist.com.

Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of the best-selling book, Options as a Strategic Investment. www.optionstrategist.com

©McMillan Analysis Corporation 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 accuracy and completeness are not guaranteed. The officers or directors of McMillan Analysis Corporation, or accounts managed by such persons may have positions in the securities recommended in the advisory. 

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