Saturday, October 7, 2017

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


  1. Replies
    1. That is where the 250 calls/puts spike high to around 200,000 looks like the left ear of Batman's head piece, and the right ear is the 255 calls of about 160,000 with small peak between the two of them (around 252) looking a little like his rounded head (guessing on that one). It could be his nose piece? Anyway, I've heard the term before and it is usually a formation that that two spike high peaks with some space between them for a head.

  2. Red, thanks for the response. I like your blog as well and I'm a "conspiracy/truther" too

    I understand the formation but what does that formation imply from a trading perspective?

    1. Well, because one ear is support and the other is resistance it implies we'll be rangebound between the two of them. Personally, I think we'll drop below support (the left ear with all the puts) next week and head toward the 245 put support level, but that's just a feeling and not supported by the data. We both know that the 250 level will be hard too break as the bulls fought so hard to overtake it. Then the week of the monthly options expiration has history of being bullish... so we might just stay between the 250 put support and the 255 call resistance as that chart suggests. But I do see 250 (2500 SPX) breaking at some point soon... maybe not next week but the week after?