Saturday, November 18, 2017

Going Nowhere Fast

Last week was even more choppy than expected with several gap down openings early in the week, but Thurs bounced back strongly to within a few pts of the SPX ATH. The early week weakness started in Asia during Trump's three day trip and seemed to be precipitated by Trump's me-first trade policies with weakness in Asia spilling into Europe then the US.  Overall expectations remain of higher highs before a mid-Dec pullback.

I. Sentiment Indicators

I am probably as frustrated as anyone by the lack of clear market direction, but much of the markets ambivalence is due to uncertainty about the tax proposal and its possible that a short term pop happens with the Senate passing their plan, but that a compromise plan with the House may not be agreed upon for several months.

The overall Indicator Scoreboard continued its push back to neutral so there is little to indicate a preferred market direction.

The Short Term Indicator (VXX $ volume and Smart Beta P/C) has also continued higher to levels that recently supported higher prices.

Looking at the short term view of the ST Indicator, a spike higher in the Smart Beta P/C early in the week was more supportive of a rally than Friday's close.

While the VXX $ volume spiked high enough to give a ST BUY.  This indicator and the NDX 3x ETFs (shown below) are the only remaining indicators supporting higher prices.

For the NDX, the SQQQ/TQQQ ratio has pushed high enough to to push prices higher for the next week or two.

For bonds (TNX) sentiment continues to hover near neutral.

For the gold miners (HUI), bearish sentiment continues to weaken, providing less support for a rally.

II. Options Open Interest

The next two weeks show some promise of upside which makes me feel that some progress on the tax plan may be on the table.  The combined puts for Wed and Fri should put strong upward pressure up to SPY 259.5 for Wed (SPX 2596) with only small call resistance at higher levels.

While for Fri, strong call resistance should cap any advance at SPY 259.

For the last week of Nov, the weekly pattern is somewhat reversed with Wed (not shown) showing strong call resistance at 259, while for Fri strong put support is seen up to SPY 259.5 with little call resistance over 260.  A late week push over SPY 260 seems likely.

Conclusions.  Last weeks was a little weaker than expected and seems to have put off the timeline for SPX 2600 by a week to Dec 1 approx. The SKEW is also lagging the topping pattern.  The higher bearish sentiment (VXX $ vol) and options open int are now providing a higher confidence trade for higher SPX prices

Weekly Trade Alert.  Look for a long in SPX Mon at 2580 or better with a target of 2600+ by Dec 1.  Tight stops at SPX 2575 or -5.  Updates @mrktsignals.

Investment Diary, update 2017.10.28, Indicator Primer
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