My information about the SPX options updates proved to be incorrect as updates do not seem to be available until the next business day, so I will continue posting on Sat using the Thur closing open interest.
I. Sentiment Indicators
The overall Indicator Scoreboard (INT term, outlook two to four months) fell sharply last week with the 5 dy EMA reaching the SELL area. Still following the July 2017 sentiment pattern, a continuation of the upward consolidation is likely for the next 1-2 weeks.
The INT view of the Short Term Indicator (VXX $ volume and Smart Beta P/C, outlook two to four months) also fell, but is well short of the July 2017 lows that may allow for higher SPX prices.
Bearish bond sentiment (TNX) remains at high levels, but is nearing the 0.11 to 0.12 range that has recently allowed rates to continue higher.
The gold miners (HUI) bearish sentiment fell sharply as early fears of emerging market contagion may have encouraged safe haven buying, but not enough to positively effect prices.
II. Dumb Money/Smart Money Indicators
The Risk Aversion/Risk Preference Indicator (SPX 2x ETF sentiment/NDX ETF sentiment, outlook 2 to 4 days/hours) as a very ST indicator fell sharply at the end of the week with a strong pickup in dumb money buying in the SPX ETFs (2x). The last similar occurrence with a strong rally was May 10 that was followed by a two week consolidation around SPX 2725 and this would be consistent with the July 2017 analog.
The option-based Dumb Money/Smart Money Indicator as short/INT term (outlook 2 to 4 days/weeks) has remained modestly negative for the last month, a pattern similar to Jan, but less extreme, that may be indicating an INT turn.
The INT term SPX Long Term/Short Term ETFs (outlook two to four weeks) fell sharply last week, completing the pattern of July 2017 reached at the top of that BUY spike.
The INT term NDX Long Term/Short Term ETF Indicator (outlook two to four weeks) remains in a neutral position, different than the SPX, but is also following patterns seen at the May 2017 and Jan 2018 tops where SELLs were not given before sharp declines..
III. Technical Indicators, Other
Is history repeating itself. It's only been about five years since a combination of FED "tightening" and stronger economy pushed the TNX interest rate from 1.5% to 3.0%. The result was pandemonium in the EU and EM markets (remember Grexit, now it's Itexit). As a result the FED backed off and markets took off. Will this time be different?
First looking at the bond (TNX) market, this time using the moving avg adj due to decay factor LT in the 2x TBT. From Oct 2013 thru Apr 2014, the early run up in rates to 2.7% produced the highest bearish sentiment (like a MACD), that then stabilized even as rates rose over 3.0%.
Comparing this to now, we saw the early spike in sentiment with the rise to 2.9%, followed by a decline and a higher rate spike over 3.0%.
So what happened to the SPX when rates spiked higher in 2013-14? We are now probably at comparable levels in the rate cycle to Oct 2013. So a lot depends on where the FED goes from here. If policies allow the TNX to stabilize around 3.0% stocks may continue higher, but tighter policies that push the TNX higher will not be as friendly to stock prices.
IV. Options Open Interest
Using the Thur closing data. SPX option open int was of limited use last week as all except the strongest call resistance at 2780 was overcome. Next week has moderate open int size. For Mon, the SPX has strong put support at 2740 and strong call resistance at 2780 and 2790, so a slight pullback is expected between support and resistance.
For Wed, a moderate amount of calls at SPX 2750 and 2760 may push prices below those levels with little support until the lower 2700s. There is strong resistance at 2775.
For Fri PM, most significant is the strong resistance at SPX 2750, so any early week decline is unlikely to rise over 2750 on Fri. There is some support at 2700.
Conclusions. Prices last week slightly exceeded the SPX 2750-75 target topping area, but a combination of Risk Aversion Indicator SELL and options open int point to a small pullback next week into the SPX 2700-50 area. The FOMC interest rate outlook next week may be an important factor in where interest rates are headed, hence the special section looking at TNX in 2013-14.
Weekly Trade Alert. Mon is likely to open higher in the 2780-90 area before a pullback that may fall to the low 2700s, but is not likely the start of a significant decline. No specific guideline. Updates @mrktsignals.
Investment Diary, Indicator Primer, update 2018.03.28 Dumb Money/Smart Money Indicators
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic
Long term forecasts
© 2018 SentimentSignals.blogspot.com
No comments:
Post a Comment