McMillan's Technical Guidelines


Lawrence McMillan Image Lawrence McMillan Founder and President, McMillan Analysis Corporation

The stock market, as measured by the Standard & Poors 500 Index, continues to march upward at a dizzying pace, observes technical expert Larry McMillan, editor of The Option Strategist.

The S&P 500 (SPX) has not even bothered to close below its five-day moving average since the October 16 bottom.  That is the longest such streak in history according to a CNBC report. That is just one sign of an overbought market.  

Equity-only put-call ratios remain on buy signals.  However, the weighted ratio has reached levels not seem since last January, shortly before a rather sharp market pullback.  

The standard ratio is not as low, but these are in overbought territory. Meanwhile, the chart of the QQQ weighted put-call ratio has already rolled over to a sell signal.  I would not think that the equity-only ratio will be far behind.

The total put-call ratio also remains on a buy signal. The buy signal of October 27 has already fulfilled its target of a 100-point gain in SPX. There is a secondary target of 2118 for SPX, based on a slightly different interpretation of the buy signal.

Market breadth has improved in recent days. For one or two days, the breadth oscillators deteriorated enough to slip into sell signals. But those were quickly canceled out as the broad market rally persisted.  

Now, both of the breadth oscillators remain on buy signals and they are modestly in overbought territory.