Saturday, March 16, 2024

BOJ May Hold the Key for ST Market Direction

The Mon aft update showed increased SPX OI put support at/above 5100 and even though Tue CPI came in hotter than expected at 0.4% for Feb, same as Jan, the markets rallied strongly, led by the NDX.  Prices were already up prior to the announcement with techs leading the way when BOJ (Japan CB) did not raise rates from -0.1% after being negative since 2016.  However, a couple of days later Japans labor unions, which all apparently negotiate at the same time every year, announced the largest wage gains in 30 years at 5+%.  Now the BOJ is expected to raise rates any time between now and mid-Apr.  This could roil markets due to the effect of the yen carry trade.  Why is that important?  I asked "Ask AI" and got this response.

Obviously, last week was more boring than expected as hasty bears spoiled the potential excitement even though inflation was stronger than everyone (but me) expected.  So this week, I want to revisit the potential for a rounded top as seen in the SPX for 2015.  Most are focused on the diagonal forming in the SPX for 2024Avi G - has already begun warning about a possible SPX 25% summer decline (no J/S) as diagonals are supposed to return to their beginning (Nov low 4100), but he does think higher highs are likely with an  Apr SPX 5350 top.  However, the DJIA in 2024 broke out of its diagonal about a month ago and has since traded sideways in about a 2% range, and the NDX appeared to break down last week when int rates (TNX) turned higher on the higher inflation news.  So if the SPX follows the 2015 scenario, it may also trade sideways (currently looking like 5000-5200) until May-June.

A VST Buy was generated for the ST composite last Fri, but could be affected by the huge vol for tripple witch exp.  SPX options OI does confirm, however.  Several INT indicators are at or near a weak Sell that may indicate a drop in SPX to the low 5000s by mid-Apr..


I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. Starting Aug 26, 2023 SPX options are removed due to extreme 0DTE volume distortions. New weights are ETF put-call indicator (30%), SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility spread of the ST SPX (VIX) to the ST VIX (VVIX) with the UVXY $ volume.

Update Alt. Bearish sentiment remains near the weak Sell level.

Update Alt EMA. Bearish sentiment remains at the weak Sell level. The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the UVXY $ Vol/SPX Trend. Weights are 80%/20%.

Update. Bearish sentiment rose sharply as the capitulation component (NYDNV/NYDEC) showed strong selling, but may be affected by the 2X volume in SPX for triple witch exp.

Update EMA. Bearish sentiment VST (grn) rose to a weak Buy and may lead to ST rally to retest recent highs.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

Update EMA. Bearish sentiment increased modestly but remains below neutral.

CITI Surprise Inflation Index for Mar shows that the trend in inflation is increasing, esp in the US.

Bonds (TNX)Bearish sentiment is as low as it got when rates were 0.5% in 2020.  Confirming the breakout in int rates (TNX) over its MAs, oil (WTI/CL1) also broke over $80/bbl. For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment is presented in a new format using the data mining software to add the inverse TNX rate to the ETF ratio.

Update. Bearish sentiment remains below neutral with HUI below the 240 triangle resistance.



II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

Update. Bearish sentiment rose slightly.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment declined slightly.
A new composite SPX options indicator uses both the volume adj (1/B-A) and P/C equivalent spread (A-B) to compensate for the discrepancy between the two.  This replaces the old SPX options indicator for the SPX ETFs + options below and the INT/LT composite. No chart.

For the SPX, I am switching to hybrid 2X ETFs plus SPX options. Taking a look at the INT term composite (outlook 2 to 4 mns), bearish sentiment declined to near the weak Sell.

For the NDX combining the hybrid ETF options plus NDX 3X ETF sentiment with the interest rate effect,  (outlook 2 to 4 mns) bearish sentiment shows similar extremes between ETF and options as in late 2020 which resulted in a choppy market until options sentiment rose.  Note QQQ options are optimal, but are N/A and are included in ETF options.

Bearish sentiment declined, now nearing the strong Sell.

For the SPX combining the hybrid ETF options plus SPX 2X ETF (outlook 2 to 4 mns) produces an indicator where, in this case, ETF options are a proxy for the SPY options.

Bearish sentiment dropped to the weak Sell level.



III. Options Open Interest

Using Thur closing OI, remember that further out time frames are more likely to change over time, and that closing prices are more likely to be effected. Delta hedging may occur as reinforcement, negative when put support is broken or positive when call resistance is exceeded.  This week I will look out thru Mar 22. A text overlay is used for extreme OI to improve readability, P/C is not changed.   A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 5117, options OI for Mon is moderate with put support up to the 5150 area and call resistance at 5175.  A rally to test recent highs at 5180+ is possible.
FOMC Wed has smaller OI, currently and will likely change, where SPX shows little call resistance above 5100, and large put support at 5k.  A wide range is possible.
For Fri stronger SPX OI with puts and calls about evenly matched around 5100 with call resistance 5150.  A  move toward the straddle at 5100 looks likely.
For EOM strong SPX OI shows increasing put support that could limit any decline to 5025-50.

IV. Technical / Other

The following uses barcharts.com as a source and discusses S&P futures (ES) as a third venue of stock sentiment in addition to options and ETFs.  The non-commercial/commercial spread represents a LT bearish sentiment (dumb money/smart money) indicator. As explained in investopedia, commercial investors (red) are institutions and are smart money, while non-commercials (green) are speculators such as hedge funds and are dumb money. Here is the current  barchart graph for the S&P 500 (top) and trader positions (1st bot) with positives as net longs and negatives as net shorts.  Bearish sentiment is represented by the spread and is positive if red > green (Buy) and negative if green > red (Sell).  ES (SPX) sentiment remained flat at a weak Buy to + 1.25 SD, NQ (NDX) moved to a Neutral at -0.25 SD, YM (DJIA) is a weak Sell at -1.25 SD, Dow theory no longer supports DJIA.

Click dropdown list to select from the following options:

Tech / Other History
2024

2023

2022

Other Indicators

Conclusions.  INT bearish sentiment is dropping, but very slowly, which probably indicates that an INT correction is likely months away and could be similar to 2015.  A Spring correction to the SPX low 5000s before a May-June top and a Summer correction of 8-10% remains the preferred outlook.  As mentioned several months ago, economic strength and higher rates (TNX) are not necessarily bad, but does favor the cyclical (DJIA) vs growth (NDX) stocks.

Weekly Trade Alert.  Both the ST composite and SPX options OI are showing the potential for early strength and possible SPX high retest.  SPX OI options are likely to change, so I will try to post updates Tue/Wed AM for FOMC.  Updates @mrktsignals.

Investment DiaryIndicator Primer, Tech/Other Refs,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021,
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

Article Index 2019 by Topic, completed thru EOY 2020.02.04
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic

Long term forecasts

© 2024 SentimentSignals.blogspot.com

Saturday, March 9, 2024

Preparing for Some March Madness

Last weeks outlook for some early weakness followed by a rally into the Fri jobs report worked out fairly well with a few twists.  The SPX was overall stronger expected as the low was only in the 5050s Tue and the high 5180s Fri AM with a close at 5124 (expt range 5025-5125).  The jobs report seemed to support a Fed easing with an increase in unemployment to 3.9% from 3.7% even though jobs were +275k since previous months were revised lower.  However, a momentum peak in techs/NDX may have been reached as NVDA opened up 4% (up 20% the 1st week in Mar) then dropped 10% from the high into the close.  Also, the volume in TQQQ doubled as smart money began to bail.

More excitement is expected next week as the large SPX options straddle at 5k is expected to put downward pressure on stocks.  The SPX OI includes a chart for CPI Tues showing a drop to/below 5050 is expected, while Wed has a large put position at 5110 that may be taken out before a decline into Fri optn exp.  SPX OI is consistent with a move to/below SPX 5k thru EOM with FOMC 19-20th.

Overall, bearish sentiment is declining, but not indicative of an INT top.  So Mar-Apr lows is likely a BTFD oppty with earnings season late Apr.


I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. Starting Aug 26, 2023 SPX options are removed due to extreme 0DTE volume distortions. New weights are ETF put-call indicator (30%), SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility spread of the ST SPX (VIX) to the ST VIX (VVIX) with the UVXY $ volume.

Update Alt. Bearish sentiment declined modestly.

Update Alt EMA. Bearish sentiment mid-week reached the weak Sell VST (grn). The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the UVXY $ Vol/SPX Trend. Weights are 80%/20%.

Update. Bearish sentiment continued to consolidate below neutral.

Update EMA. Bearish sentiment remains just above a weak Sell.
The ST VIX calls and SPXADP indicator bearish sentiment fell to a weak Sell and looks similar to late 2021.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

Update EMA. Bearish sentiment moved firmly into the weak Sell area.

Bonds (TNX)Bearish sentiment now matches its 2021 lows with TNX below its MAs after filling a gap at 4.05%. For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment is presented in a new format using the data mining software to add the inverse TNX rate to the ETF ratio.

Update. Bearish sentiment reversed slightly with a strong rally off the 200 support area.  Triangle resistance is near 240.



II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

Update. Bearish sentiment remains near a weak Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment fell back below neutral Fri after a mid-week bounce. A new composite SPX options indicator uses both the volume adj (1/B-A) and P/C equivalent spread (A-B) to compensate for the discrepancy between the two.  This replaces the old SPX options indicator for the SPX ETFs + options below and the INT/LT composite. No chart.

For the SPX, I am switching to hybrid 2X ETFs plus SPX options. Taking a look at the INT term composite (outlook 2 to 4 mns), bearish sentiment remains below neutral.

For the NDX combining the hybrid ETF options plus NDX 3X ETF sentiment with the interest rate effect,  (outlook 2 to 4 mns) bearish sentiment shows similar extremes between ETF and options as in late 2020 which resulted in a choppy market until options sentiment rose.  Note QQQ options are optimal, but are N/A and are included in ETF options.

Bearish sentiment continued to decline below the weak Sell level as ETF options declined toward the Weak Sell and NDX ETFS were largely unchanged.

For the SPX combining the hybrid ETF options plus SPX 2X ETF (outlook 2 to 4 mns) produces an indicator where, in this case, ETF options are a proxy for the SPY options.

Bearish sentiment for SPX declined toward the weak Sell level.



III. Options Open Interest

Using Thur closing OI, remember that further out time frames are more likely to change over time, and that closing prices are more likely to be effected. Delta hedging may occur as reinforcement, negative when put support is broken or positive when call resistance is exceeded.  This week I will look out thru Mar 15. A text overlay is used for extreme OI to improve readability, P/C is not changed.   A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 5124, options OI for Mon is moderate with put support at 5100 and 5125 and call resistance at 5150.  SPX 5100-25 is likely.
CPI Tue has small OI where SPX has a 4k call position ay 5050 that is likely to attract prices and only modest put support.
Wed has small OI where SPX has a large 5k put position at 5110 that is likely to attract prices with straddles from 5050 to 5100.
For Fri AM strong OI and a very large straddle at 5000 and medium large at 5100 will likely anchor prices with a negative (call) bias targeting about 5025.  A similar setup for Apr 19 with current OI 70k at 5000 and 30k at 5100 so far may indicate a trading range.
For Fri PM strong OI is slightly more negative with SPX 4950-5000 possible.
For Thur EOM/Good Fri Holiday strong SPX OI has a large straddle at 5k and a large call position at 5015, so below 5015, possibly 4950-5000 is likely.

IV. Technical / Other

The following uses barcharts.com as a source and discusses S&P futures (ES) as a third venue of stock sentiment in addition to options and ETFs.  The non-commercial/commercial spread represents a LT bearish sentiment (dumb money/smart money) indicator. As explained in investopedia, commercial investors (red) are institutions and are smart money, while non-commercials (green) are speculators such as hedge funds and are dumb money. Here is the current  barchart graph for the S&P 500 (top) and trader positions (1st bot) with positives as net longs and negatives as net shorts.  Bearish sentiment is represented by the spread and is positive if red > green (Buy) and negative if green > red (Sell).  ES (SPX) sentiment remained flat at a weak Buy to + 1.25 SD, NQ (NDX) moved to a Neutral at -0.5 SD, YM (DJIA) is a weak Sell at -1.5 SD, Dow theory no longer supports DJIA.

Click dropdown list to select from the following options:

Tech / Other History
2024

2023

2022

Other Indicators

Conclusions.  Next weeks inflation reports with CPI Tue and PPI Thur may give some indication of whether the Jan uptick was just an anomaly.  CPI is expected to be up slightly overall with lower core MOM while down YOY as higher Feb 2023 drops out.  SPX options OI indicates that a disappointment is likely.  I have been watching oil as it tested $80/bbl twice last week before falling back.  Summer driving season, May-Sept, is likely to be the real test.

Weekly Trade Alert.  Some follow thru lower is expected with Tue CPI to about SPX 5050, while Wed may bounce back above 5100 before down into EOW to 5025 or lower.  Updates @mrktsignals.

Investment DiaryIndicator Primer, Tech/Other Refs,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021,
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

Article Index 2019 by Topic, completed thru EOY 2020.02.04
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic

Long term forecasts

© 2024 SentimentSignals.blogspot.com

Saturday, March 2, 2024

Jack and the Beanstalk Market

Last weeks pullback was much less than expected based on the SPX options OI with only a drop to SPX 5050s while a drop to 5k or lower was expected.  The EOM call resistance was largely ignored even though the increase in PCE was the same as the 0.1% for CPI, but was considered expected.  Friday's rally did occur on cue with Fed head Waller hinting at a type of QE where the Fed starts buying T-bills directly from the Treasury while still selling bonds, but the effects are somewhat opaque.  Essentially Treasury Sec Yellen wants to sell more ST T-bills (6 mn) rather than bonds, hoping that LT rates will drop.  Currently, there is 20% bill/bond cap, so this allows her to sell more T-bills.  For the Fed, there is basically a 6-mn window offsetting QT, but after 6 mns when T-bills mature, QT comes back.  It sounds politically motivated to me by giving financial markets a 6-mn breather before the election.

Trader Joe this WE came out with the first EW prediction that I've seen where the SPX top could be extended into late 2024 with a target around SPX 5400. In the DM/SM section, I've also added a chart for the NDX 3x ETFs looking at the actual $ volume which shows much stronger FOMO volume at the Jan 2022 top than we are seeing today.  The narrow leadership of the Mag7 may effect results somewhat, but techs look like they could still go higher.

Sentiment for the most part remains unchanged.


I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. Starting Aug 26, 2023 SPX options are removed due to extreme 0DTE volume distortions. New weights are ETF put-call indicator (30%), SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility spread of the ST SPX (VIX) to the ST VIX (VVIX) with the UVXY $ volume.

Update Alt. Bearish sentiment continues to consolidate below neutral.

Update Alt EMA. Bearish sentiment continues to consolidate below neutral. The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the UVXY $ Vol/SPX Trend. Weights are 80%/20%.

Update. Bearish sentiment rose to neutral.

Update EMA. Bearish sentiment rose toward neutral.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

Update EMA. Bearish sentiment remains at the weak Sell level.

Bonds (TNX)Bearish sentiment remains at extreme lows. (TNX) rate fell sharply Fri from the 200D SMA resistance to the 100D SMA support.  Below is the 50 SMA at 4.09%.  A break above 4.35% is not expected until May, assuming oil rises above $80/bbl. For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment is presented in a new format using the data mining software to add the inverse TNX rate to the ETF ratio.

Update. Bearish sentiment fell as prices bounced off the 200 support area..



II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

Update. Bearish sentiment remains at the weak Sell level.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment fell slightly, but remains near neutral. A new composite SPX options indicator uses both the volume adj (1/B-A) and P/C equivalent spread (A-B) to compensate for the discrepancy between the two.  This replaces the old SPX options indicator for the SPX ETFs + options below and the INT/LT composite. No chart.

For the SPX, I am switching to hybrid 2X ETFs plus SPX options. Taking a look at the INT term composite (outlook 2 to 4 mns), bearish sentiment rose from the weak Sell level.

For the NDX combining the hybrid ETF options plus NDX 3X ETF sentiment with the interest rate effect,  (outlook 2 to 4 mns) bearish sentiment shows similar extremes between ETF and options as in late 2020 which resulted in a choppy market until options sentiment rose.  Note QQQ options are optimal, but are N/A and are included in ETF options.

Bearish sentiment remains below the week Sell level.

Taking a look at the SQQQ/TQQQ $ vol only shows some interesting behavior at the Jan 2022 top, ie, a mad rush of FOMO volume (grn) which is missing so far.  Similar, although less striking behavior was seen for SPX ETFs.
For the SPX combining the hybrid ETF options plus SPX 2X ETF (outlook 2 to 4 mns) produces an indicator where, in this case, ETF options are a proxy for the SPY options.

Bearish sentiment for SPX fell from neutral, nearing the weak Sell.



III. Options Open Interest

Using Thur closing OI, remember that further out time frames are more likely to change over time, and that closing prices are more likely to be effected. Delta hedging may occur as reinforcement, negative when put support is broken or positive when call resistance is exceeded.  This week I will look out thru Mar 8. A text overlay is used for extreme OI to improve readability, P/C is not changed. A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cros.

With Fri close at SPX 5137, options OI for Mon is moderate and could see some downward pressure toward 5075-5100 by the close.
Wed has somewhat larger OI where SPX has call resistance at 5150 and little put support until 5k and below.  Unclear, but could see some negative bias.
For Fri stronger SPX OI shows stronger put support between 5000-5100 and could mean a rally even if the jobs data is strong.  SPX 5k-5100 is mostly straddled and 5050-75 looks like a target for the close.
For Fri Mar 15 AM strong OI with very large straddle at 5k likely to attract prices.


IV. Technical / Other

The following uses barcharts.com as a source and discusses S&P futures (ES) as a third venue of stock sentiment in addition to options and ETFs.  The non-commercial/commercial spread represents a LT bearish sentiment (dumb money/smart money) indicator. As explained in investopedia, commercial investors (red) are institutions and are smart money, while non-commercials (green) are speculators such as hedge funds and are dumb money. Here is the current  barchart graph for the S&P 500 (top) and trader positions (1st bot) with positives as net longs and negatives as net shorts.  Bearish sentiment is represented by the spread and is positive if red > green (Buy) and negative if green > red (Sell).  ES (SPX) sentiment remained flat at a weak Buy to + 1.25 SD, NQ (NDX) moved to a weak Sell at -1.0 SD, YM (DJIA) is a weak Sell at -1.5 SD, Dow theory no longer supports DJIA.

Click dropdown list to select from the following options:

Tech / Other History
2024

2023

2022

Other Indicators

Conclusions.   News from Ukraine is becoming more ominous and it appears that a Russian victory/forced settlement could occur by this summer without major escalation by NATO (ground troops).  Perhaps this will provide an excuse for the long awaited correction.  The question is who will pay for rebuilding the war-torn cities, I doubt that Trump will be very supportive of US participation.

Financial markets are overbought, but surprisingly appear to be much less so than Jan 2022 as evidenced by the NDX 3x ETF $ volume shown in the DM/SM section.

Weekly Trade Alert.  The last two weeks both turned out to be "Sell the rumor and buy the news" events with the Nvidia EPS and last weeks PCE, and next weeks jobs data on Fri maybe the same as indicated by the SPX options OI.   Range perhaps, SPX 5025-5125.  Updates @mrktsignals.

Investment DiaryIndicator Primer, Tech/Other Refs,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021,
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

Article Index 2019 by Topic, completed thru EOY 2020.02.04
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic

Long term forecasts

© 2024 SentimentSignals.blogspot.com