The SPX got a strong boost upward during the GOP convention with many of the US election polls showing strong gains for Trump vs Biden with the SPX rising 100 pts from 3400 to 3500. The rally continued into the middle of last week on Trumps announcement that the states should prepare for a Covid-19 vaccine on Nov 1st, peaking at SPX 3580. In the Tue AM update as a followup to the Dec 2019 sentiment comparison, I presented the case for a top by Sept optn exp at SPX 3550-600 followed by a 3-5% pullback by the EOM, but Trumps announcement accelerated the timeline to only a few days, as the original euphoria was meet by the realization that the availability of a vaccine could end the "stay at home" dependence on technology, resulting in a swift dive by the media-oriented tech giants.
Even though the SPX decline of about 7% was greater than expected due to the 10% decline in NDX, the Dec 2019 analog still seems alive and well as both SKEW and VIX term structure are still following Dec 2019. Similar to the two month rally in July-Aug that followed the "June swoon" of 7-8%, the Dec 2019 analog indicates that the next period of "peak political optimism" could occur late Oct around the scheduled debates on Oct 22. The SPX target is 3600-50. Details in Tech/Other.
There was a significant increase in bearish sentiment across the board last week led by the VXX $ Vol, which does support a relief rally and possibly new ATHs.
The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment saw a moderate rise, but only slightly more than seen at the early Dec 2019 pullback.
The INT view of the Short Term Indicator (VXX $ volume and Smart Beta P/C [ETF Puts/Equity Calls], outlook two to four months) bearish sentiment saw a somewhat sharper rise.
The VXX $ Vol rose sharply, comparable to the May 2019 decline and is showing a ST BUY.
Bonds (TNX). Bearish sentiment in bonds remains at extreme lows as rates rose late in the week from 0.62% to 0.72%.
For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment has fallen back bleow neutral as prices have traded in a narrow band.
II. Dumb Money/Smart Money Indicators
The option-based Dumb Money/Smart Money Indicator as short/INT term (outlook 2 to 4 mns/weeks) rose moderately, comparable to the "June swoon" of 7-8%.
And the sister options Hedge Ratio sentiment has risen ack to neutral on a very ST basis, again similar to the June swoon.
The INT term SPX Long Term (2x/DM) ETFs (outlook two to four weeks) bearish sentiment rose sharply and will likely match the levels of the May and Oct 2019 pullbacks with a few more days of volatility.
The INT term NDX Long Term (2x/DM) ETFs (outlook two to four weeks) bearish sentiment has risen sharply, now reaching the ST BUY level (no chart).
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 Sept 11. Also, this week includes a look at the TLT for Feb exp.
With Fri close at SPX 3427, options OI for Mon are somewhat unclear with a lot
of overlap between 3400 and 3460 that may creat volatility in that range,
Put support starts at 3390 and call resistance at 3465.
Wed has somewhat larger OI where SPX shows stronger put support and lower call resistance and a move over 3440 could run to 3475 or higher.
For Fri, large OI may influence weekly behavior, and results may depend on put rollover during the week, 3450 represents the mid-point of overlapping puts and calls but higher prices are possible. Strong put support at 3400.
For EOM, only clear support is SPX 3300 with call resistance ay 3525.
For the QQQ (NDX/41) this week's close is 283.6 (low 271.8) vs last week 292.5 and optn exp shows put support starting at 285 and call resistance at 288. Limited upside is likely.
Using the GDX as a gold miner proxy closing at 40.9 after bouncing back from 39.5 is almost unchanged from two weeks ago. Downward pressure remains to 40 or less.
Currently the TLT is 162.7 with the TNX at 0.72%. Rates were down as expected for most of the week before rising sharply (10 bps) on Friday's "strong" jobs numbers.
IV. Technical / Other
The SKEW seems to have topped similar to mid Dec 2019 and may indicate a topping process has begun that could extend a couple of months.
The VIX term structure topped a little earlier than expected and contributed to my expectations of a decline later in Sept, but now appears to following the Dec 2019 pattern with a bottom around 1.1.
Looking at the SPX price pattern from Dec 2019-Feb 2020, a similar test of the 50 SMA was followed by an SPX 270 pt rally in a little less than 2 months. A similar rally from the 3350 low would be SPX 3620 late Oct, about the time of the US Pres debates.
Conclusions. This was not the first time that one of my outlooks for a two to three period has been accelerated over a matter of days, but at least I was in the ballpark for the price range. The overall outlook has not really changed as "to be or not to be" of Trumps re-election is likely to be the dominating force for the next couple of months. Depending on how well the Dec 2019 analog holds, it's interesting that the final bump up in Feb 2020 would line up with a post-election blow-off right before a collapse. Perhaps the discussions going around of a "real-time" Trump victory followed by a delayed victory by Biden when the "late" mail-in votes are counted has some merit.
Weekly Trade Alert. Several more days of volatility are likely for base building before any significant rally occurs (optn exp week?). Updates @mrktsignals.
Investment Diary, Indicator Primer,
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
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