Even Nvidia can't help a stock market that's in real trouble

The S&P 500 is experiencing volatility, trading between 6,500 and 6,900. Despite Nvidia's earnings beat, market internals remain negative. Sell signals persist, with equity-only put-call ratios rising and market breadth struggling. Volatility is high, with VIX spiking, indicating potential buy signals if it drops. The market's direction hinges on breaking above 6,900 or falling below 6,500, which would be negative for U.S. stocks.

By Lawrence G. McMillan The S&P 500 needs to stay above 6,500 - or all bets are off The S&P 500 SPX is having a rough week - down to the lower end of its trading range. Even Nvidia's (NVDA) earnings beat on Thursday didn't help. Market internals are mostly negative. All of this is causing some volatile SPX moves within a wide range between 6,500 and 6,900. So, SPX is in a trading range. The top of the range is around 6,900. A move above that would change the picture to solidly bullish again. The lower end is the major support area in the 6,500 to 6,550 zone that was tested five times in September and October. A breakdown below 6,500 would be extremely negative for U.S. stocks. Nvidia beats - but the market gets beaten Heading into Wednesday's market close, the at-the-money Nvidia straddle expiring on Nov. 21 was priced at $13.65, or 7.3% of the stock price. That was very expensive. In the past 10 earnings reports, Nvidia's post-earning move was only larger than that twice - and those were seven- and 10 quarters ago. Thus, the option markets were highly optimistic that a huge upside move was going to occur. They were wrong. This is now the third quarter in a row where NVDA's options have been severely overpriced heading into the earnings. It would take a stalwart backbone to sell these straddles (or, more likely, out-of-the-money strangles) prior to earnings, but that is the strategy that would have profited for three consecutive quarters. Read: Stocks see biggest midday reversal since April as Nvidia-inspired rebound falters. Here's what investors need to know. Sell signals and higher volatility While SPX came close to the -4 "modified Bollinger band," the McMillan volatility band (MVB) sell signal is still in place. Equity-only put-call ratios have become more bearish. The ratios generated sell signals back in mid-October. However, for a while they were having trouble rising. That is no longer the case. The latest SPX breakdown has caused these ratios to begin to rise sharply and steadily. That means they are on solid sell signals. Those sell signals will remain in place until the ratios roll over and begin to trend lower. Market breadth has struggled. This has been true for months, but on this latest decline breadth has been quite terrible, and both breadth oscillators are in oversold territory. The good news is they will eventually generate buy signals when breadth improves, but remember that the market can decline sharply while the breadth oscillators are oversold (oversold does not mean buy). Breadth would have to remain positive for at least three consecutive days in order to generate a buy signal. New highs and new lows on the NYSE have been fighting a battle of sorts. This indicator is normally a longer term one (witness the four-month buy signal that was in place from June into October), but in the past two weeks it has flipped - with three signals being generated. It's a little hard to see how so many NYSE stocks can be near 52-week highs while many others are near 52-week lows, but that is the case. The last of these is a sell-signal because new lows numbered more than 100 issues for two consecutive days (November 14 and 17). New lows have continued to dominate since then as well. This is a new sell signal, and it will remain in place until new highs outnumber new lows on the NYSE for two consecutive days. Volatility remains high, with VIX VIX spiking to 26.20 on Nov. 20. That spike puts VIX in "spiking" mode, and a "spike peak" buy signal (for stocks) will eventually follow when VIX closes at least 3.0 points below the highest price that it reached while in "spiking" mode. So, a close at or below 23.20 would generate a new buy signal from the indicator. If this buy signal is confirmed, it will remain in place for 22 trading days (about a month), unless stopped out by VIX closing above that previous peak. The previous trend of VIX buy signal was stopped out when VIX closed above its 200-day moving average (MA) for two consecutive days. The next trend of VIX signal will occur when both VIX and its 20-day moving average are on the same side of the 200-day moving average. With the 20-day rising and approaching the 200-day, a new trend of VIX signal could be generated soon. The construct of volatility derivatives has remained very modestly bullish. The term structures of both the VIX futures and of the Cboe volatility indices have continued to slope upwards, although they are much flatter than they have been in quite a while. One problem has been that the VIX futures are trading at a discount to VIX. The November VIX futures have expired, so December is now the front month. Thus, we are comparing the price of December and January futures to gauge the short-term health of the market, and that is bullish because January is trading above December. In summary, the market has been volatile within a wide trading range. We will follow individual signals as they are generated and will continue to roll deeply in-the-money options. New recommendation: Prologis Inc. (PLD) A new put-call ratio sell signal has arisen in PLD (PLD), and so we are going to act on it. Buy 2 PLD (Dec. 19) 125 puts in line with the market. We will hold as long as the put-call ratio is on a sell signal. Follow-up action: All stops are mental closing stops unless otherwise noted. We are using a standard rolling procedure for our SPY 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. Also, for outright long options, roll if they become 8 points in-the-money. Long 0 APH (Dec. 19) 130 calls and short 0 APH (Dec. 19) 155 calls: This spread was stopped out on November 17, when APH (APH) closed below 133. It had been rolled up many times and resulted in a solid profit. Long 1 expiring TSEM (TSEM) (Nov. 21) 105 call and short 1 TSEM (Nov. 21) 115 call: This spread was rolled up several times but now has fallen back and both sides are out-of-the-money. Sell this spread and replace it with the following: Buy 1 TSEM (Dec. 19) 100 call and Sell 1 TSEM (Dec. 19) 115 call for a debit of 5.00 or less. Long 1 expiring SPY (Nov. 21) 665 put and short 1 SPY (Nov. 21) 615 put: This is the position based on the MVB sell signal. SPX nearly touched the -4 band this week. Continue to hold until SPX touches either of the +/-4 bands. Sell this spread and replace it with the following: Buy 1 SPY (Dec. 19) at-the-money put and sell 1 SPY (Dec. 19) put with a striking price 50 points lower. Long 2 BXP (Jan. 16) 72.5 puts: We will hold this position as long as the weighted put-call ratio for BXP (BXP) remains on a sell signal. Long SPY (Nov. 28) 670 put and short 1 SPY (Nov. 28) 630 put: This position was established last week when SPX closed below support. However, it was quickly stopped out for a small loss when the market rallied and SPX closed above 6,760. We had bought a SPY bull spread in line with the last week's "new highs vs. new lows" buy signal, but it was stopped out when NYSE new lows outnumbered new highs for two consecutive days on Nov. 13 and 14. Long 2 CME (CME) (Dec. 12) 285 calls: Continue to hold as long as the put-call ratio remains on a buy signal. 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 Disclaimer: (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 This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 11-20-25 1704ET