MW The stock market isn't letting a government shutdown spoil its party - so far

By Lawrence G. McMillan

In prior shutdowns, the S&P 500 typically drops at first - then investors move on

The S&P 500 index SPX keeps going up - defying the potential consequences of the U.S. government shutdown. The index has support at all the old familiar places: 6,550, 6,500, 6,340-6,360, and 6,200. In reality, a close below 6,500 would be disappointing to many and would generate some additional heavy selling. But that doesn't seem likely at this point.

There are a couple of sell signals in place, although they are outnumbered by the buy signals. One such sell signal is the McMillan volatility band (MVB). It would be stopped out if SPX were to close above the +4<SIGMA> band. A strong day by SPX on Oct. 2 would stop out that sell signal.

Equity-only put-call ratios continue to drop, and that is bullish for stocks. These ratios are near the lower range of their charts, so they are in overbought territory. But they won't roll over to sell signals for stocks until they begin to trend higher. The standard ratio is now back to the lowest levels since December 2021.

Breadth has been more of a problem. Even with SPX making another all-time high, the breadth oscillators remain on sell signals. As we've discussed before, this is caused by the fact that most institutions are concentrating in a subset of the entire stock market and are thus ignoring many issues. Those ignored issues are struggling. However, this picture of breadth changes when one considers the volume of advancing issues minus the volume of declining issues - what we call cumulative volume breadth (CVB). CVB made a new all-time high yesterday, Oct. 1, along with SPX. That new all-time high for CVB was registered in both the "stocks-only" data as well as the NYSE-based data.

New highs on the NYSE continue to outnumber new lows. New lows did have one day (Sept. 25) where they were the leader, but that was it. It would take two consecutive days of new lows exceeding the number of new highs on the NYSE in order to stop out this buy signal, which has been in place since late June.

Realized volatility has fallen again in recent days. The 20-day historical volatility of SPX (HV20) has fallen to 7%. That is an overbought condition, but it won't become a sell signal until it rises back to 10% or higher.

The construct of volatility derivatives remains bullish for stocks as well. The term structures of the VIX futures and of the Cboe volatility indices continue to slope upwards. Moreover, the VIX futures are trading with a relatively large premium to VIX VIX. All of these are positive signs for stocks.

In summary, we remain generally bullish on stocks, in line with the SPX chart and the various indicators that are on buy signals. However, we will trade all confirmed signals as they appear. Continue to roll deeply in-the-money calls up to higher strikes.

Market insight: Shutdown

The worst stock-market reaction to a U.S. government shutdown was at the end of 2018 and the beginning of 2019. That shutdown lasted from Dec. 22, 2018 to Jan. 25, 2019 (35 days). The market had already been falling dramatically before that shutdown began, and in fact bottomed soon after it started and rallied strongly until its end. At the time, the Federal Reserve was also embattled over interest rates.

Before 1995, shutdowns were more frequent but often short (hours or a couple of days). Since the mid-1990s, shutdowns have become less frequent but sometimes much longer and more disruptive. In general, the stock market seems to drop initially and then moves on.

New recommendation: AST Spacemobile $(ASTS)$

This stock has been strong, off and on, since May 2024. It is now appearing to break out again to the upside. Options are very expensive here, so we are going to use a bull spread to counter that to a certain extent.

Buy 1 ASTS (ASTS) (Nov. 21) 60 call and Sell 1 ASTS (Nov. 21) 80 call in line with the market.

This position would be stopped out on a close below 47 by ASTS.

New recommendation: Teucrium Sugar Fund (CANE)

Sugar options are traded on the ICE futures exchange, but CANE CANE is an ETF that mirrors the price of sugar futures (SB00). A buy signal has been generated from the put-call ratio of the futures options on the ICE. However, you don't have to trade those futures options in order participate in a potential rally in sugar.

Buy 10 CANE (Nov. 21) 10 calls at a price of 0.80 or less.

It would probably be more efficient to purchase the sugar call options on the ICE exchange, but if you don't have a futures account, this is a good alternative.

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 2 APH $(APH)$ (Oct. 17) 120 calls: There is no longer a trailing stop here, since the position has been rolled up several times. Roll up again at 130.

Long 1 TSEM $(TSEM)$ (Oct. 17) 75 call: These calls were rolled up when TSEM traded at 75 on October 1. Continue to hold without a stop. Roll up again at 85.

Long 1 SPY (Oct. 10) 660 call and short 1 SPY (Oct. 10) 675 call: This position is the trend of VIX buy signal. Stop yourself out if VIX closes above 19 for two consecutive days.

Long 5 SVXY SVXY(Oct. 19) 51 calls: We monitor the weighted VIX futures premium via a proprietary calculation. Specifically, the calculation is currently at 1.47. This trade would be stopped out if it drops to 0.50 or lower. We will update the calculation weekly.

Long 1 SPY (Oct. 10) 660 call and sell 1 SPY (Oct. 10) 675 call: We will hold until new lows outnumber new highs on two consecutive days on the NYSE.

Long 4 ATAI $(ATAI)$(Oct. 17) 4 calls: The stop remains at 4.50.

Long 0 LUV $(LUV)$ (Oct. 17) 32.5 calls: these calls were stopped out when LUV closed below 32 on September 30.

Long 2 SPLG SPLG (Oct. 17) 76 straddles: Initially, we will hold without a stop, but we intend to risk a maximum of about half the straddle price. Meanwhile, if the underlying trades at either 3 points higher or 3 points lower, then roll that side. For example, if SPLG trades up to 79, then roll the October 76 calls up to the October 79 calls; or if it trades down to 73, then roll the puts down.

Long 1 GLD GLD (Nov. 21) 353 call and short 1 GLD (Nov. 21) 370 call: When GLD traded at the higher strike (353) on Sept. 30, this position was rolled up. Raise the closing, trailing stop to 344 for this spread.

Long 1 NVDA $(NVDA)$ (Nov. 21) 170 put and short 1 NVDA (Nov. 21) 145 put: Exit this spread now, since the weighted put-call ratio for NVDA is no longer on a sell signal.

Long 10 CORN CORN Nov (21st) 17 calls: We will hold these as long as the weighted put-call ratio for corn futures is on a buy signal.

Long 2 NKE $(NKE)$ Nov (21st) 72.5 puts: We will hold these as long as the weighted put-call ratio for NKE futures is on a sell signal.

Long 6 BITF $(BITF)$ (Oct. 17) 3 calls: The stop for BITF remains at 2.35.

Long 2 FTNT $(FTNT)$ Oct (17th) 80 calls: Continue to hold as long as the put-call ratio for FTNT is on a buy signal.

Long 1 SPY (Nov. 21) 650 put and short 1 SPY (Nov. 21) 600 put: This position is based on the MVB sell signal. This position has a target of SPX trading at the -4<SIGMA> band, which is currently at 6,500 and rising. It would be stopped out if SPX closed above the +4<SIGMA> band, and that band is currently at 6,715 and rising. The position of the bands changes daily, due to price chance and change in realized volatility, so we will update these targets and stops weekly.

Long 1 SPY (Oct. 17) 656 put: This position is held in line with the breadth-oscillator sell signals. Those sell signals are still in place. We will exit this position if both breadth-oscillator sell signals are stopped out.

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.

(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

October 02, 2025 15:44 ET (19:44 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.