MW The S&P 500 pushed through its trading range - but can the bulls hold the line?

By Lawrence G. McMillan

The stock market's internal indicators are mixed

The S&P 500 Index SPX has managed to push through the top of its trading range, past 6,100. The question now is whether this will generate stronger momentum, or if it will retreat back to the lower end of its trading range - 5,870 to 5,770. There is still a gap on the SPX chart, which would be filled by a decline to 5,860.

The market's internal indicators are mixed. Equity-only put-call ratios are on buy signals. The weighted ratio has been steadily declining (and thus on a buy signal) for a couple of weeks, but the standard ratio was lagging behind - moving mostly sideways. However, in the past couple of days the standard ratio has fallen as well, and it is thus on a buy signal too.

On the other hand, market breadth has weakened, and the breadth oscillators are on sell signals. These signals have been confirmed with a multi-day verification. Deteriorating breadth near the top of the trading range is probably to be expected. This is our most negative indicator at the moment.

Realized volatility has begun to fall. Specifically, the 20-day historical volatility of SPX (HV20) is down to 12%, and it is no longer in an uptrend. This is modestly positive for stocks, since it removes what had been a bearish indicator since mid-January.

VIX VIX has dropped to near 15 and isn't budging much from there. The most recent "spike peak" buy signal of Jan. 27 remains in place. There have been a couple of days since then when SPX has fallen sharply on what was interpreted by stock traders as bad news (the tariff announcement on Feb. 3, and the CPI number on Feb. 12). In both of those cases, VIX barely rose, and it quickly fell back. This is marked on the lower right of the accompanying VIX chart. This is a stark contrast from the VIX overreactions of last August and December. In any case, there is not a trend of VIX signal in place at this time.

The construct of volatility derivatives has retained a bullish outlook for stocks. The market was not worried by the news about tariffs nor about CPI. In other words, the term structures of the VIX futures and of the Cboe volatility indices continue to slope upwards, and the VIX futures are trading at a premium to VIX.

In summary, we are not holding a core position since SPX is still in a trading range. We will trade individual indicator signals as they occur, and we will continue to roll deeply in-the-money options.

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.

For outright long options, roll if they become 8 points in-the-money.

Long 4 WBA $(WBA)$ (Feb. 21) 12.5 calls: This is the "alternative" Dogs of the Dow position. Hold without a stop at this time.

Long 1 SPY SPY (March 7) 603 call and short 1 SPY (March 7) 623 call: This position was originally based on the latest "spike peak" buy signal of Dec. 19. It was subsequently rolled to this spread when the most recent "spike peak" buy signal occurred.

Long 1 SPY (Feb. 21) 580 put and short 1 SPY (Feb. 21) 550 put: This spread is to be held as long as at least two of these three indicators remain on sell signals: HV20, trend of VIX, and equity-only put-call ratios. HV20 is no longer in an uptrend, and the equity-only put-call ratios are back on buy signals, so sell this spread to close the position.

Long 1 SPY (March 7) 606 call and Short 1 SPY (March 7) 621 call: This position was bought because of the breadth oscillator buy signals. Those oscillators have rolled over to sell signals, so close this position.

Long 1 SPY (March 7) 607 call and short 1 SPY (March 7) 622 call: This position is based the "new highs vs. new lows" buy signal. This trade would be stopped out if, on the NYSE, new lows were to outnumber new highs for two consecutive days.

Long 1 SPY (March 21) 607 call and Long 1 SPY (March 21) 595 put: We originally bought a straddle, and then later rolled the put down. Continue to roll any option that becomes at least 8 points in the money.

Long 2 FIS (April 17) 80 calls: We will continue to hold these calls until the weighted put-call ratio of FIS $(FIS)$ rolls over to a sell signal. Technically, that put-call ratio is still falling (i.e., on a buy signal), but the stock was rocked by a poor earnings report.

Long 2 ALL $(ALL)$ (March 21) 200 calls: We will hold these calls as long as the put-call ratio buy signal is in place.

Long 10 WEAT WEAT (March 21) 5 calls: We will hold these calls as long as the put-call ratio buy signal is in place.

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 "Options as a Strategic Investment." www.optionstrategist.com

(c)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.

-Lawrence G. McMillan

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February 13, 2025 17:13 ET (22:13 GMT)

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