MW Microsoft and Meta are pushing the stock market into even more overbought territory
By Lawrence G. McMillan
Bullish investors defy the evidence. Apple and Amazon could be a reality check.
Microsoft $(MSFT.UK)$ reported earnings after the market close on July 30, and on July 31 the stock has exploded to the upside. Leading into the earnings, the option market had priced the near-term straddle at a mere 19.5 points (3.8%), so this earnings beat was a large one. Somewhat ironically, that 3.8% projection was about in the middle of the post-earnings moves in the past 10 quarters. However, the prior three quarters had seen moves of +7.6%, -6.2% and -6.0%, respectively. Adding this current move of 8.8% to that list, one can see that the option market has been underestimating Microsoft's moves for a year now. There is not a logical explanation for this underpricing by the option market.
Meta Platforms $(META)$ also reported earnings after Wednesday's close. Coming into the earnings, the option market had priced the straddle at 42 points, or 6% of the stock price. That straddle price was cheaper than six of the past 10 post-earnings moves by Meta - meaning that the odds were theoretically slightly in favor of buying the straddle.
Meta's post-earnings moves have seesawed. The past four quarters were -10.5%, +1.2%, -10.3% and +0.5%, respectively, and now +11.2%. Every other quarter is either quite dull or wildly swinging, which probably reflects analysts' difficulties in accurately forecasting Meta's earnings.
Two more large-cap tech stocks are due to report after the close on July 31.
Apple $(AAPL)$: The near-term straddle was priced at just under 9 points (4.2%). That's a touch expensive in terms of the past 10 post-earnings moves, being larger than only three of them. Apple's stock has only moved more than 4.2% post-earnings once in the last six quarters. So this is not a statistically attractive option straddle purchase. Apple is not really part of the "AI boom" that is affecting the earnings of companies such as Microsoft and Meta.
Amazon $(AMZN.UK)$ is also reporting after the close on July 31. As of July 30, the near-term straddle was priced at 12.5 points (5.4%). That is attractive from the standpoint that it is a smaller move than six of the past 10 post-earnings reports have produced in Amazon's stock. If you can buy the Amazon at-the-money (Aug. 1) straddle for 6% of the stock price or less, you are getting it for a good price.
Looking at the broader market, the S&P 500 Index SPX continues to plow ahead to all-time highs. The SPX chart is strong. There is support at various levels (although pullbacks have been miniscule, so it's difficult to rely on short-term support areas), namely 6,280 and 6,200 - the lows of each of the last two weeks. Then there should also be support at 6,150 - the old highs from February. These are marked on the accompanying SPX chart.
There are a number of overbought conditions. The first is that SPX had climbed above its +4<SIGMA> modified Bollinger band (mBB) and now has fallen back below the +3<SIGMA> band. That creates a classic mBB sell signal, but we don't trade those. We prefer to wait for further downside movement as confirmation of that signal. Specifically, SPX has to trade at 6,316 or lower in order for a McMillan Volatility Bank $(MVB.AU)$ sell signal to be activated. Furthermore, if SPX closes back above the +4<SIGMA> band, the process would be reset and the determination of an MVB sell signal would begin again.
Equity-only put-call ratios have turned upward, and they are now on confirmed sell signals for stocks. That confirmation comes from the computer programs that we use to analyze these charts, as well as the naked eye. These new sell signals would be stopped out if the ratios were to fall to new 2025 lows, below their lows of last week. Otherwise, they will remain on sell signals as long as they are trending upward.
Market breadth has been weakening and now both breadth oscillators have rolled over to sell signals. This is our shortest-term indicator and can be subject to whipsaws. It is likely that breadth will be positive Thursday, in the wake of those strong earnings reports. In any case, it will take at least two days of positive breadth to reverse these new breadth oscillator sell-signals.
New 52-week highs on the New York Stock Exchange continue to outnumber new lows, and so this indicator remains bullish. This buy signal would be stopped out if new lows were to be greater than new highs for two consecutive days.
Realized volatility, as measured by the 20-day historical volatility of SPX (HV20), has fallen to a extremely low reading of 6%. That is an overbought condition, but it won't be a sell signal until it climbs back to 10% or higher.
Implied volatility in the form of the Cboe Volatility Index VIX remains at low levels as well. Thus, the trend of VIX buy signal (for stocks) remains in place. That will be the case unless VIX closes above its 200-day moving average, which is at 19.60. There is no "spike peak" buy signal working at this time.
The construct of volatility derivatives remains bullish in its outlook for stocks, as the term structures of both the VIX futures and of the Cboe volatility indices continue to slope upwards. Furthermore, there is a large premium on the VIX futures. Those are all bullish factors for stocks.
In summary, we remain bullish on the stock market because of the positive nature of the SPX chart. However, as these overbought conditions produce sell signals, we will act on them as well. It is also important to continue to roll deeply in-the-money calls up to higher strikes.
New recommendation: Breadth oscillator sell signal
As noted above, both breadth oscillators have rolled over to sell signals. These will remain in place unless breadth registers two strong positive days consecutively.
Buy 1 SPY SPY (Aug. 22) at-the-money put: We are not using a spread here, since this put is inexpensive with VIX at low levels. We will update the stop weekly for this position.
New recommendation: Equity-only put-call ratio sell signal
This is a longer-term signal, so we will use longer-term options here and spread them.
Buy 1 SPY (Sept. 19) at-the-money put and sell 1 SPY (Sept. 19) put with a striking price 40 points lower.
This position will be stopped out if the equity-only put-call ratios fall to new 2025 lows. We will update the situation weekly.
Follow-up actions:
All stops are mental closing stops unless otherwise noted.
We are using a standard rolling procedure for our 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 bull call 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 2 Amphenol $(APH.UK)$ (Aug. 15) 100 call: Raise the closing stop to 101. Roll up again at 110.
Long 1 TSEM (Aug. 15) 50 call: These calls were rolled up to the 50 strike when Tower Semiconductor (TSEM) shares traded at $50 on July 17. Roll up again at 55.
Long 1 SPY (Sept. 19) 635 call and short 1 SPY (Sept. 19) 685 call: This is the position based on the differential between implied and historical volatility. Stop out if SPY closes below 626.
Long 2 SPY (Aug. 22) 635 calls: This position was bought in line with the cumulative volume breadth $(CVB.AU)$ buy signal. That signal is still in effect. CVB made a new all-time high on July 23, both in "stocks only" terms as well as NYSE terms. The target was for SPY to eventually make an all-time high, which it has done. Hold with a trailing, closing stop at 626.
Long 1 SPY (Aug. 15) 625 call and short 1 SPY (Aug. 15) 640 call: This position is the trend of VIX buy signal. Stop out if VIX closes above 20 for two consecutive days.
Long 1 SPY (Aug. 22) 635: This is the remnant of the most recent "spike peak" buy signal. Even though the 22-day holding period for the "spike peak" buy signal trading system has been reached, we are retaining a position with a tightened stop: Stop out if VIX closes above 18.03.
Long 5 SVXY SVXY (Aug. 15) 44 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 2.83. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.
Long 1 SPY (Aug. 29) 625 call and short 1 SPY (Aug. 29) 645 call: We will hold until new lows outnumber new highs on two consecutive days on the NYSE.
Long 1 AAPL (Aug. 15) 210 call and short 1 AAPL (Aug. 15) 225 call: We will hold as long as the weighted put-call ratio for Apple (AAPL) remains on a buy signal.
Long 3 DOCU (Aug. 15) 80 calls: These were bought when DocuSign shares $(DOCU)$ closed above $80 on July 22. We will hold as long as the weighted put-call ratio for DOCU remains on a buy signal.
Long 4 ATAI (Aug. 15) 2.5 calls: Stop out if ATAI Life Sciences (ATAI) closes below $3.
Buy 5 OPEN $(OPEN.UK)$ (Aug. 15) 2.5 calls: Stop out if Opendoor (OPEN) closes below $1.75.
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
MW Microsoft and Meta are pushing the stock market into even more overbought territory
By Lawrence G. McMillan
Bullish investors defy the evidence. Apple and Amazon could be a reality check.
Microsoft (MSFT) reported earnings after the market close on July 30, and on July 31 the stock has exploded to the upside. Leading into the earnings, the option market had priced the near-term straddle at a mere 19.5 points (3.8%), so this earnings beat was a large one. Somewhat ironically, that 3.8% projection was about in the middle of the post-earnings moves in the past 10 quarters. However, the prior three quarters had seen moves of +7.6%, -6.2% and -6.0%, respectively. Adding this current move of 8.8% to that list, one can see that the option market has been underestimating Microsoft's moves for a year now. There is not a logical explanation for this underpricing by the option market.
Meta Platforms (META) also reported earnings after Wednesday's close. Coming into the earnings, the option market had priced the straddle at 42 points, or 6% of the stock price. That straddle price was cheaper than six of the past 10 post-earnings moves by Meta - meaning that the odds were theoretically slightly in favor of buying the straddle.
Meta's post-earnings moves have seesawed. The past four quarters were -10.5%, +1.2%, -10.3% and +0.5%, respectively, and now +11.2%. Every other quarter is either quite dull or wildly swinging, which probably reflects analysts' difficulties in accurately forecasting Meta's earnings.
Two more large-cap tech stocks are due to report after the close on July 31.
Apple (AAPL): The near-term straddle was priced at just under 9 points (4.2%). That's a touch expensive in terms of the past 10 post-earnings moves, being larger than only three of them. Apple's stock has only moved more than 4.2% post-earnings once in the last six quarters. So this is not a statistically attractive option straddle purchase. Apple is not really part of the "AI boom" that is affecting the earnings of companies such as Microsoft and Meta.
Amazon (AMZN) is also reporting after the close on July 31. As of July 30, the near-term straddle was priced at 12.5 points (5.4%). That is attractive from the standpoint that it is a smaller move than six of the past 10 post-earnings reports have produced in Amazon's stock. If you can buy the Amazon at-the-money (Aug. 1) straddle for 6% of the stock price or less, you are getting it for a good price.
Looking at the broader market, the S&P 500 Index SPX continues to plow ahead to all-time highs. The SPX chart is strong. There is support at various levels (although pullbacks have been miniscule, so it's difficult to rely on short-term support areas), namely 6,280 and 6,200 - the lows of each of the last two weeks. Then there should also be support at 6,150 - the old highs from February. These are marked on the accompanying SPX chart.
There are a number of overbought conditions. The first is that SPX had climbed above its +4<SIGMA> modified Bollinger band (mBB) and now has fallen back below the +3<SIGMA> band. That creates a classic mBB sell signal, but we don't trade those. We prefer to wait for further downside movement as confirmation of that signal. Specifically, SPX has to trade at 6,316 or lower in order for a McMillan Volatility Bank (MVB) sell signal to be activated. Furthermore, if SPX closes back above the +4<SIGMA> band, the process would be reset and the determination of an MVB sell signal would begin again.
Equity-only put-call ratios have turned upward, and they are now on confirmed sell signals for stocks. That confirmation comes from the computer programs that we use to analyze these charts, as well as the naked eye. These new sell signals would be stopped out if the ratios were to fall to new 2025 lows, below their lows of last week. Otherwise, they will remain on sell signals as long as they are trending upward.
Market breadth has been weakening and now both breadth oscillators have rolled over to sell signals. This is our shortest-term indicator and can be subject to whipsaws. It is likely that breadth will be positive Thursday, in the wake of those strong earnings reports. In any case, it will take at least two days of positive breadth to reverse these new breadth oscillator sell-signals.
New 52-week highs on the New York Stock Exchange continue to outnumber new lows, and so this indicator remains bullish. This buy signal would be stopped out if new lows were to be greater than new highs for two consecutive days.
Realized volatility, as measured by the 20-day historical volatility of SPX (HV20), has fallen to a extremely low reading of 6%. That is an overbought condition, but it won't be a sell signal until it climbs back to 10% or higher.
Implied volatility in the form of the Cboe Volatility Index VIX remains at low levels as well. Thus, the trend of VIX buy signal (for stocks) remains in place. That will be the case unless VIX closes above its 200-day moving average, which is at 19.60. There is no "spike peak" buy signal working at this time.
The construct of volatility derivatives remains bullish in its outlook for stocks, as the term structures of both the VIX futures and of the Cboe volatility indices continue to slope upwards. Furthermore, there is a large premium on the VIX futures. Those are all bullish factors for stocks.
In summary, we remain bullish on the stock market because of the positive nature of the SPX chart. However, as these overbought conditions produce sell signals, we will act on them as well. It is also important to continue to roll deeply in-the-money calls up to higher strikes.
New recommendation: Breadth oscillator sell signal
As noted above, both breadth oscillators have rolled over to sell signals. These will remain in place unless breadth registers two strong positive days consecutively.
Buy 1 SPY SPY (Aug. 22) at-the-money put: We are not using a spread here, since this put is inexpensive with VIX at low levels. We will update the stop weekly for this position.
New recommendation: Equity-only put-call ratio sell signal
This is a longer-term signal, so we will use longer-term options here and spread them.
Buy 1 SPY (Sept. 19) at-the-money put and sell 1 SPY (Sept. 19) put with a striking price 40 points lower.
This position will be stopped out if the equity-only put-call ratios fall to new 2025 lows. We will update the situation weekly.
Follow-up actions:
All stops are mental closing stops unless otherwise noted.
We are using a standard rolling procedure for our 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 bull call 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 2 Amphenol $(APH.AU)$ (Aug. 15) 100 call: Raise the closing stop to 101. Roll up again at 110.
Long 1 TSEM (Aug. 15) 50 call: These calls were rolled up to the 50 strike when Tower Semiconductor (TSEM) shares traded at $50 on July 17. Roll up again at 55.
Long 1 SPY (Sept. 19) 635 call and short 1 SPY (Sept. 19) 685 call: This is the position based on the differential between implied and historical volatility. Stop out if SPY closes below 626.
Long 2 SPY (Aug. 22) 635 calls: This position was bought in line with the cumulative volume breadth (CVB) buy signal. That signal is still in effect. CVB made a new all-time high on July 23, both in "stocks only" terms as well as NYSE terms. The target was for SPY to eventually make an all-time high, which it has done. Hold with a trailing, closing stop at 626.
Long 1 SPY (Aug. 15) 625 call and short 1 SPY (Aug. 15) 640 call: This position is the trend of VIX buy signal. Stop out if VIX closes above 20 for two consecutive days.
Long 1 SPY (Aug. 22) 635: This is the remnant of the most recent "spike peak" buy signal. Even though the 22-day holding period for the "spike peak" buy signal trading system has been reached, we are retaining a position with a tightened stop: Stop out if VIX closes above 18.03.
Long 5 SVXY SVXY (Aug. 15) 44 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 2.83. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.
Long 1 SPY (Aug. 29) 625 call and short 1 SPY (Aug. 29) 645 call: We will hold until new lows outnumber new highs on two consecutive days on the NYSE.
Long 1 AAPL (Aug. 15) 210 call and short 1 AAPL (Aug. 15) 225 call: We will hold as long as the weighted put-call ratio for Apple (AAPL) remains on a buy signal.
Long 3 DOCU (Aug. 15) 80 calls: These were bought when DocuSign shares (DOCU) closed above $80 on July 22. We will hold as long as the weighted put-call ratio for DOCU remains on a buy signal.
Long 4 ATAI (Aug. 15) 2.5 calls: Stop out if ATAI Life Sciences (ATAI) closes below $3.
Buy 5 OPEN (OPEN) (Aug. 15) 2.5 calls: Stop out if Opendoor (OPEN) closes below $1.75.
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
(MORE TO FOLLOW) Dow Jones Newswires
July 31, 2025 12:10 ET (16:10 GMT)
MW Microsoft and Meta are pushing the stock -2-
(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
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July 31, 2025 12:10 ET (16:10 GMT)
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