Weekly Commentary

We have been bullish continuously since early June. But recent events
and indicator changes have put this short-term forecast into jeopardy.

$SPX has support at 1430 from two downward probes in September. 

This week, that has also been the low. Hence, it has
become important support.

One of the more negative developments is the fact that both the
standard and the weighted equity-only put-call ratios are on sell
signals now.

Market breadth has gotten quite negative as well. After
registering a strong overbought condition back on September 14th
(right after the Fed’s latest announcement), breadth began to deteriorate
and hasn’t stopped yet.

Volatility indices ($VIX and $VXO) have not confirmed the
bearishness of the put-call ratios or breadth. $VIX has barely risen this
week and, in fact, was down 8 cents on Wednesday, even though the
Dow was down 128 and SPX was down nearly 9 points. VIX would
have to rise above 17, at a minimum, to take on a less bullish tone.

An $SPX close below 1420, coupled with a $VIX close above 17,

would clearly break the market’s uptrend and would dictate

a more cautious outlook. If that happens, aggressive
traders could buy SPY puts for an outright speculation.

Larry McMillan


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Larry McMillan


Professional trader Lawrence G. McMillan is perhaps best known as the author of Options As a Strategic Investment, the best-selling work on stock and index options strategies, which has sold over 300,000 copies. An active trader of his own account, he also manages option-oriented accounts for certain individuals. In a research…