More Conflicting Indicators Short Term

Last week started with the weakness foreseen by the SPY options open int, but in the end the overly eager bears got humped by the bulls.  The ECB vailidated the european growth recovery with last week's decision to cutback EU QE in 2018.  Are we now in the global blowoff stage discussed in my Mar 2015 annual forecast?  This would certainly explain the out performance of the DJIA as these are the largest of the US multinationals.  IBM for instance has 50% of its revenues from Europe and its last profit report resulted in a 10% jump in the stock.  The bears are contributing all they can to fuel the rally by looking only at valuations and problems in the US.  The Indicator Primer (Investment Diary) is complete, but I am considering another section on technical indicators later.

I.A. Sentiment Indicators - Normal

This week I want to take a closer look at some of the indicators short term so they will be in Part B.  The overall Indicator Scoreboard bounced back to neutral on the Wed decline.

The Short Term Indicator (VXX $ volume and Smart Beta P/C) had a stronger move up on the back of the sharp jump in the VXX $ volume.

For bonds (TNX), the week started with a breakout over 2.4%, but the late news of Howell's preference as the new Fed Head caused a pause at weeks end.  Its seems like Trump floats a different idea every day then waits to see the markets reaction.  Longer term, higer growth will push rates higher.

For gold miners (HUI), prices have paused near recent lows, but bearish sentiment continues to fall as bulls continue to expect growth and inflation to be a good thing.  Don't they remember that in 2000 growth and inflation were twice today's levels, but gold was only $300/oz?  In addition, here is a five year Stockcharts example of the close relationship between gold (black) and interest rates (red, 1/TNX), especially in 2017.

I.B. Sentiment Indicators - Short Term EMAs 2015-17

I noticed several contrasting indications looking thru the data, so I want to highlight them here.  First, looking at the ST indicator components, the Smart Beta P/C has finally started to decline, reaching the initial SELL level at -0.40 reached Oct 23, 2015.  But the final top saw a lower level at -0.45.

The VXX $ volume had a huge jump on Wed, generating a ST BUY, and comparing this to late 2015, it never reached the SELL level and even showed a BUY spike early Dec.

There is also a conflict with the shorter term 3x ETFs, where the SPXU/UPRO has reached much lower levels than in late 2015.

While the 3x NDX SQQQ/TQQQ ETFs had declined to a below neutral sentiment level, but last Wed saw a BUY spike.

II. Options Open Interest

Last week short pullback may be an indication of options OI influence returning as Wed close at SPY 255.3 was just over the forecast 255.  For Wed, strong resistance at 258 may cause a slight pullback to 257 or lower from 257.7.

For Fri, the upside for SPY looks more promising with a "most likely" at 257, but little resistance until 260, perhaps good job numbers will encourage the bulls.

Nov expiration is starting to look less favorable for the bulls with a "most likely" at SPY 255, and the large call positions at 255 and 260 are like to cause some fairly wild swings due to delta hedging.

As posted on Twitter last week, more bad news for the gold miners as decline below GDX $23 leaves almost no put support.  Prices may bounce back, but any rise in interest rates will have dangerous implications.

Conclusions.  The standing dominoes are down to one as the Smart Beta PC has joined the other indicators showing very low bearishness.  The high VXX $ volume continues to be a problem as does the spike in bearishness for the NDX short term.  SPY open int shows that a small pullback may be followed by a sharp rally toward 260 by end of the week, but by options exp week (Nov 17) a more sizable pullback may begin.

Weekly Trade Alert.  For those that like to gamble a small pullback on the SPX may be a BTFD with a target of roughly 2600, but I will be watching more closely at indications of a shorting opportunity.  Updates @mrktsignals.

Investment Diary, update 2017.10.28, Indicator Primer
Article Index 2017 by Topic
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© 2017 SentimentSignals.blogspot.com

Bubble Dynamics Continue

When I showed a chart of the typical Sornette Bubble in June, I commented how the declines become shallower as the bubble progresses.  Last weeks decline of SPX 12 pts in one day was the largest in a month, but the resulting doubling in volume in the VXX caused a sharp reversal thru Friday.  Outside that surge in excitement, market sentiment remains relatively unchanged so expect more of the same.

I. Sentiment Indicators

Today, I am going to take a shorter term view 2016-17 to allow more detail in the charts,  but year-end 2015 is still my analog.  The overall Indicator Scoreboard shows a slight uptick in bearishness, mostly from Thurs decline.

The Short Term Indicator (VXX $ volume and Smart Beta P/C) continues its sideways dance with a slight decline in the Smart Beta P/C offset by a slight increase in the VXX $ volume.

Taking a longer term look at the money flow ETFs SDS/SSO and QID/QLD, the short/long ratios are at extreme lows and are approaching the reverse of the 2013 levels.  So when the top appears, it will probably be more significant than most expect.

Taking a look at bonds (TNX), since the Sept SELL, rates have moved backup to the mid-year highs at 2.4%, but with lower bearish sentiment.  Will this lead to a breakout that tests the 1 yr highs at 2.6% or even go higher?  My contention is that the Republican goal to borrow as much as possible while rates are low (the Trump path to prosperity) will eventually backfire with higher rates pulling asset prices down.

The gold miners (HUI), may be an early indicator of the outcome of the pro-growth tax cuts, as prices fell modestly even as bearish sentiment declined.  Will gold miners be the first victim of higher rates?

II. Options Open Interest

The effectiveness of options OI as certainly been reduced as the relentless upward pressure has overwhelmed all resistance from SPY calls, so interpret the following with a grain of salt.  Currently with the SPY at 257, we are in delta hedging, so the Wed "most likely" at 255 probably means little, while continued upward pressure could go to 259.

The story for Fri is pretty much the same although stronger resistance shows up at SPY 260.

Taking a quick look at next month's exp for Nov, the "most likely" is a decline down to SPY 254 with strong resistance at 259, but the outcome probably depends more on the overall sentiment picture.

Conclusions.  The SPX broke out of the expected 2560-70 range and I am beginning to wonder what it will take for the bears to give up.  Oct always seems to be a favorite of the bears with talk of "crashes" and "cycles", so hopefully Nov will see the bears go into hibernation so a pullback can begin.  Until we see a sharp decline in the ST Indicator no shorting is advised, and I have no further upside targets.

Weekly Trade Alert.  Nothing this week.  Updates @mrktsignals.

Investment Diary, update 2017.10.xx, (in progress) Indicator Primer
Article Index 2017 by Topic
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© 2017 SentimentSignals.blogspot.com

Cerberus vs Hydra

No, I am not referring to Greek mythology, but to two of the indicators I follow that currently show conflicting results.  One one hand the VIX Call Indicator, which gave a SELL signal on Sept 23, has not had a false signal this year, but last week was its third week.  Next week is opt exp with Wed the exp of VIX options as well as the second NK holiday which may show some unexpected fireworks.  On the other hand the ST Indicator has been warning of a move to SPX 2500 or higher since Aug 12 when I first warned "not to short" even as most EW analysts were projecting much lower SPX prices.  The ST Indicator still remains in neutral territory.

I. Sentiment Indicators

The overall Indicator Scoreboard remains in the SELL area indicating that the upside is at most very limited.

The Short Term Indicator (VXX $ volume and Smart Beta P/C) has declined slightly and the next couple of charts will take a closer look at what to expect in the event of a repeat of year-end 2015.  Last week I incorrectly identified the Aug 2015 decline as SPX 130 pts when actually it was 230 pts.

First, I want to look at a comparison of the VIX Call Indicator (VCI) and the ST Indicator (STI) over 2017.  For the first four SELLs (red vertical bars), the VCI tended to be early and the SPX decline did not start until the STI dropped down to the -0.6 level or lower.  BUYs (green bars) were mostly the same.

Looking at the 2017 STI through last week (st EMAs), we have barely made it to the -0.2 level and nowhere near a SELL.

Going back to 2015 for the STI, you can see that mid-Oct was also about -0.2, but by the top early in Nov the level did reach -0.6.  So again early Nov 2017 may prove to be a significant top if the STI drops to -0.6 or lower by that time.

Moving on to bonds (TNX), both rates and bearish sentiment fell slightly.

For the gold miners (HUI), sentiment rose slightly as prices consolidated.

II. Options Open Interest

There is not much change to the options open int for next week.  The market struggled at SPY 255 all last week (close 254.95), and for Wed with delta hedging from calls at 254 providing support and little overhead resistance.  A move to 252.5 is possible to the downside if 254 is beached.

For Fri opt exp, the "batman" (puts and calls peaking in the middle with supporting wings on either side) is even more tilted to the right indicating a more bullish outcome is likely, but again we also saw this at the May exp.  Delta hedging over SPY 255 would push to 256 or higher, while a decline is likely to stop at 253.

Conclusions.  The VIX Indicator SELL now has only three days to the Oct VIX options expire, and the ST Indicator is still saying "not yet".  Overall the outlook remains the same.  Looking to the 2015 period for comparison, slightly higher highs in the SPX 2560-70 range thru early Nov seems to be the likely outcome.

Weekly Trade Alert.  Nothing this week, will be watching the "new options" for clues to any turn.  Updates @mrktsignals.

Investment Diary, update 2017.10.xx, (in progress) Indicator Primer
Article Index 2017 by Topic
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© 2017 SentimentSignals.blogspot.com

Hanging on by a Thread

Last week saw the SPX meet my extended objective of 2550 based on the ST Indicator comparison to 2015, but the picture is of yet incomplete.  Most of my indicators, including the Overall Indicator Scoreboard, are at or near SELL levels, but the ST Indicator remains near neutral.

I. Sentiment Indicators

The overall Indicator Scoreboard has dropped firmly into the SELL area which may be one reason the SPX has stalled at the 2550 level.

The Short Term Indicator (VXX $ volume and Smart Beta P/C) has stalled out just below neutral, so it does not seem that a sharp decline is likely.  The spike in the ST Indicator Aug 2017 resembled closely the Aug 2015 flash crash of SPX 130+ pts, even though the Aug 2017 decline was only 50+ pts.  In 2015 the Aug decline was followed by a rally of about 150 pts into early Nov, and so far in 2017 the SPX is up 136 pts from the 2417 level.  How much higher can it go?

Looking at some of the money flow ETF ratios, for the SPX the SPXU/UPRO is at the lowest level of the last three years, while the SQQQ/TQQQ would allow some improvement in the NDX.  Not a lot of support for upside in the SPX.

Moving on to bonds (TNX), there was a fairly sharp reversal downward in short term sentiment as rates stalled out near the 2.4% resistance level.

For the gold miners (HUI), sentiment and prices remained relatively unchanged.

II. Options Open Interest

First, I want to point out another instance of the "new options" that showed up as calls on Monday for the Wed exp.  From last week:

then on Mon when the SPY was 251 about 45k new calls showed up at SPY 253 with a price of $.10, then Wed with the SPY at 253.2, the calls closed at $.21 with a high of $.50 for the day. (ref Investors Diary 2017.09.15)

For next week with the SPY at 254.4, there is strong resistance at 255 and little support until 253, so a narrow trading range is expected.

For Fri, SPY 254.5 looks like a sweet spot but a move below 254 could go down to 242 or slightly lower.

For exp week, there is not much change with the "batman" formation raising the possibility of a sharp reversal, but the rising number of puts at 250 may limit any downside.

Conclusions.  The VIX Indicator SELL from two weeks ago as well as most indicators point to a reversal soon, but the ST Indicator is still saying "not yet".  I am completely surprised how the bears are holding on to their VXX longs and ETF puts like a dog with a bone, but so far the ST Indicator has been completely accurate.  Looking to the 2015 period for comparison, slightly higher highs in the SPX 2560-70 range thru early Nov seems to be the likely outcome.

Weekly Trade Alert.  Nothing this week, will be watching the "new options" for clues to any turn.  Updates @mrktsignals.

Investment Diary, update 2017.10.xx, (in progress) Indicator Primer
Article Index 2017 by Topic
Article Index 2016 by Topic

© 2017 SentimentSignals.blogspot.com