I am not sure how many of you pay attention to Bitcoin (BTC), but it as been on a tear since the Sept stock market correction, more than doubling from the $9000 level. I view it as more of a novelty, but possibly an indicator of excess liquidity. Over the last few weeks there have have been several indications of tightening of the credit markets in China, and the Turkey Day massacre of BTC (-10%+) has me wondering of what's to come. In Nov 2018, while the SPX was consolidating after it's Oct drop of about 10%, BTC fell 40% and only a month later in Dec the SPX started a 20% decline. A continued drop in BTC may be a warning.
Last week I was looking for a move back up into the SPX 3620-70 zone by early Dec on "vaccine news", and Moderna's announcement Mon accelerated the move up, hitting my target by Tue with follow thru in Fri to 3645. One of the timing gurus is predicting a swing high Mon/Tue. SPX options OI is also showing strong call resistance for jobs report Fri, while Dec EOM is showing a huge call position at 3510&15 of 65k calls, eerily similar to my Sept 19 warning of a huge call position at 3225 of 30k calls right before the late Sept selloff.
On a lighter note, MW has an article by Jeremy Siegel, a respected academic know for predicting DJIA 20k in 2015, is now predicting a good 2021 with 40k in 4-5 years. Unfortunately the article forgot to mention that his original prediction July 2015, was that the DJIA would reach 20K by the end of 2015, one month before the Aug flash crash of 15% down from 18k and then a second 15% decline starting Dec after a sharp rebound. Early 2017, the DJIA did finally reach 20K, so I agree 40K is likely sometime, but it may take twice as long and could be a very rocky road.
I. Sentiment Indicators
The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment continued to fall last week and remains consistent with an INT top.
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 fell sharply early in the week now below that of the Feb SPX highs. (due to VXX $ Vol below).
The VXX $ Vol fell sharply as volatility players seem to be finally giving up.
Bonds (TNX). Bearish sentiment in bonds is mostly unchanged.
For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment is also virtually unchanged even as prices broke below the lower TL. A retest of the TL around 300 (known as the "kiss of death") is possible before further downside.
II. Dumb Money/Smart Money Indicators
The option-based Dumb Money/Smart Money Indicator as short/INT term (outlook 2 to 4 mns/weeks) bearish sentiment has turned back down now somewhat lower than the Feb top.
And the sister options Hedge Ratio bearish sentiment has finally joined the party as the second move over SPX 3600 has convinced (or fooled) hedgers that the rally is for real, and is now comparable to the Feb top.
The INT term SPX and NDX ETF sentiment is covered in the Tech/Other section using the new data mining indicators.
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 Dec 4 & EOM. Also, this week includes a look at the TLT for Dec exp.
With Fri close at SPX 3638, options OI for Mon is moderate with an even P/C. Put support/call resistance is 3580/3650 with a slight negative bias into the close toward 3625.
Wed has smaller OI where SPX support resistance is 3550/3625 with a slight positive bias over 3600 due to elevated P/C. (Note Dev = Dec, my typo).
For jobs report Fri SPX OI positions are moderate with a fairly strong negative bias to below 3575, but the many overlapped hedges between 3500 and 3650 make directionality uncertain.
For DEC 31 EOM, it's early as many puts are added a few days before exp, but currently the extreme low P/C and very large calls positions at SPX 3510&15 of 65k can result in strong negative delta hedging (gamma) similar to what happened late Sept with 30k calls at 3225.
For the QQQ (NDX/41, 12k=293), closing at 299, tere is very little put support down to the 270s with strong call resistance at 300. The NDX may start to fade by mid-month, but strength in cyclicals (DJIA) may hold up the SPX.
Currently the TLT is 160.2 with the TNX at 0.84%, minor support/resistance zones are 158.5/161.5, moderate 155/166.5 and major 152/170. I expect a trading range for TNX of about .75% to .95% until Feb when a new stimulus package may pressure rates higher.
IV. Technical/ Other
For the SPX ETF sentiment, I am going to look at the term structure or SSO ETF spread to the CPCRev calls and hedge ratio or SSO spread to ETF calls. First for the term structure, we've seen a pattern of lower and lower sentiment followed by lower prices since 2018. Last week made a new low, exceeding the Sept top.
While the SPX hedge ratio, hedging has been on the increase since the Feb 2018 volatility spike which may be an indicator of less volatile declines. However, the recent decline matches the Sept and exceeds the Feb top.
For the NDX ETF sentiment, I am going to look at the term structure or QLD ETF spread to the equity calls and hedge ratio or QLD spread to ETF calls. Here, we also see increasing lows for the term structure followed by lower prices with the current level well below any previous sentiment.
While for the NDX hedge ratio, we are also seeing a pattern of increasing hedging and although below the Sept lows still higer than at other INT tops.
Conclusions. Every thing seems to be pointing to an important top in the SPX as early as next week, although the recovery theme is likely to provide support for a couple more weeks. A repeat of the Dec 2015 analog is also looking more likely with the contrarian view to Jeremy Siegel's bullish call similar to the call prior to the Aug 2015 flash crash as well as the EOM SPX options OI negative gamma outlook similar to Sept. If there is a sharp decline into Feb 2021, it will likely be reversed when a stimulus package comes out.
Weekly Trade Alert. A high is likely early next week, possibly near SPX 3650 to match the O/N high Tue (FX) at 3658. SPX options is showing the potential for a decline to below 3600 by Fri. 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
No comments:
Post a Comment