‘Sell' signs are showing up in the stock market — but this number matters most

McMillan Analysis presents a mixed technical outlook for the S&P 500 (SPX), maintaining a cautiously bullish stance as long as the index holds above the critical 6,500 support level, below which a significantly more bearish scenario is anticipated. While new sell signals have emerged from the McMillan Volatility Band (MVB) and exploding realized volatility (HV20), positive market breadth, new all-time highs in cumulative volume breadth (CVB), and a VIX 'spike peak' have generated buy signals. The firm notes divergent equity-only put-call ratios and diminishing VIX futures premiums, emphasizing the importance of the 6,500 SPX threshold amidst these conflicting indicators.

Analysis

The S&P 500 (SPX) faces a mixed technical outlook, with McMillan Analysis maintaining a cautiously bullish stance contingent on the index holding above the critical 6,500 support level. A breach below 6,500 would trigger a significantly more bearish scenario, emphasizing the importance of this threshold. The market recently experienced a "tariff tantrum" on Oct. 10, leading to increased volatility and conflicting indicator signals.

Several sell signals have emerged, including a McMillan Volatility Band (MVB) sell signal and a sharp increase in realized volatility (HV20) from 6% to 13%. Additionally, the weighted equity-only put-call ratio is on a sell signal, and the VIX futures premium has diminished to "warning" levels. Conversely, market breadth oscillators and cumulative volume breadth (CVB) have generated buy signals, with CVB making new all-time highs in "stocks only" terms.

Implied volatility (VIX) generated a "spike peak" buy signal on Oct. 13 after reaching 22.44 on Oct. 10 and then falling to 19.03. However, the previous "trend of VIX buy signal" for stocks was stopped out as VIX closed above its 200-day moving average for two consecutive days. While VIX term structures remain bullishly upward sloping, the weakening VIX futures premium indicates a more bearish development.

Key Decisions for Investors

• Investors should closely monitor the S&P 500's ability to maintain the 6,500-6,550 support level, as a sustained breach below this point would necessitate a significant re-evaluation of market exposure.
• Evaluate implementing the VIX 'spike peak' buy signal strategy by purchasing a SPY call spread with a stop-out if VIX closes above 22.44, while being mindful of the overall mixed volatility signals and diminishing VIX futures premium.
• Review existing individual holdings and adjust positions based on specific signals, such as selling SVXY calls, holding NKE and BXP puts, and closing FTNT calls and the breadth-oscillator-based SPY put.
• Consider a long position in Beam Global (BEEM) common stock, utilizing a trailing stop at $2.75, based on its favorable technical pattern.