New Highs on the Nyse Pump Up the Market, but the Vix is Sending Mixed Signals

The S&P 500 Index (SPX) continues to rise, making consecutive new all-time highs. Currently, there is support between the 5,670 and 5,770 levels, giving traders a cushion in this range. While there is no formal resistance at the moment, a frequently used target is the +4σ “modified Bollinger Band” (mBB), a technical indicator that identifies potential price targets. This band is currently trending upwards and is near the 5,900 mark.

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One of the key bullish signals comes from the McMillan Volatility Band (MVB), which issued a buy signal in early August, represented by the green “B” on the accompanying SPX chart. This signal points to the +4σ Band as its target, aligning with the broader market trend. As long as this MVB buy signal remains in place, traders and investors can view it as a positive indicator for further gains in the S&P 500.

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Equity-only put-call ratios, another closely watched technical metric, have also been falling, which indicates a bullish trend for stocks. Although the rate at which these ratios are declining has slowed slightly in recent days, the trend remains favorable. As long as these put-call ratios continue to trend lower, they signal continued strength in the stock market. In the coming days, some relatively small numbers will be removed from the 21-day moving averages, which could cause these ratios to increase. However, analysts are not expecting a signal at this point and prefer to wait for more definitive confirmation.

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Market breadth has seen some improvement this week, with breadth oscillators returning to buy signals, though they remain in modestly overbought territory. This positive shift cancels out any concerns about a potential sell signal, which had seemed like a possibility just a week ago. Additionally, cumulative volume breadth (CVB) has stayed bullish, reaching new all-time highs alongside the S&P 500 on two different occasions this week. This strong CVB performance further confirms the new highs being achieved by the broader stock market.

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Another positive indicator is the dominance of new highs over new lows on the New York Stock Exchange (NYSE). New lows have dropped to single-digit levels, reinforcing the solidly bullish outlook for stocks. As long as new highs continue to outnumber new lows by such a wide margin, the market remains in favorable territory for further gains.

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The VIX, often referred to as the “fear gauge,” is offering mixed signals. On one hand, there is a "spike peak" buy signal in effect, which will remain valid for 22 trading days or until VIX closes above 23.14—whichever happens first. However, there is also a VIX sell signal based on its current trend. This sell signal would only be negated if VIX were to close below its 200-day moving average (MA), currently sitting at 15.30 and beginning to rise at a steadier pace.

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Despite these mixed signals from VIX, the overall construct of volatility derivatives is still mostly bullish for the stock market. The term structures of volatility derivatives, which represent how option prices change over time, are sloping upwards, which is a positive sign. The one exception to this is the “election bump,” where SPX options expiring shortly after the upcoming November election are more expensive. This reflects some market uncertainty surrounding the election outcome, which is less than three weeks away.

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In conclusion, the outlook for the S&P 500 remains positive. The current “core” bullish position will be maintained as long as the index closes above the 5,670 level, and preferably above 5,770. New positions will be added when fresh buy signals are generated. Meanwhile, investors are rolling deeply in-the-money calls upward, which allows them to lock in partial profits while reducing downside risk.

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New Recommendation: Amphenol Corp. (APH) Calls
A new buy signal has emerged for Amphenol Corp. (APH) based on a weighted put-call ratio. Interestingly, this buy signal is occurring at around the same level as it did a year ago, and the previous one resulted in positive gains. As a result, traders are advised to buy two APH (Jan. 17) 67.5 calls at the current market price. These positions will be held as long as the weighted put-call ratio remains on a buy signal.

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New Recommendation: Builders FirstSource Inc. (BLDR) Puts
Conversely, a put-call ratio sell signal has been triggered for Builders FirstSource Inc. (BLDR). In response, investors are recommended to buy one BLDR (Nov. 15) 200 put at the current market price. This position will be held as long as the put-call ratio sell signal for BLDR remains active.

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Both of these recommendations are based on technical signals that traders will follow to either capture upside potential or protect against downside risks, depending on how the market trends. The market continues to present opportunities, with the S&P 500 advancing and technical indicators signaling both buy and sell opportunities across different stocks.

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