Is the Election Finally Over?

I had been planning on using "USA vs USTrump" as a title for this week, but the Supreme Court decision late Fri killed that.  I wasn't surprised at the outcome, but the 7-2 margin was a surprise.  I guess Trump doesn't have as many friends in high places as he does in the redneck bars in his Red states.

The SCOTUS decision and the FDA approval of Pfizer's covid vaccine late Fri combined with the high SPX options OI Mon/Wed are likely to propel the SPX back to 3700+ (possibly as high as 3750) the first half of the week, but a pop & drop can occur any time after the FOMC report on Wed.  Ideally, I would like to see a repeat of the Sept-Oct 2018 highs.  This would imply a high options exp, with a drop starting by the end of day continuing into the EOM to the SPX 3500-25 area and a high retest the first half of Jan 2021.

In last weeks Tech/Other section, i showed the Rydex Bear/Bull ETF rato that indicated an immediate INT top was not likely and this week I will look at a couple of VIX measures that show similar results as well as a couple of SPX ETF indicators.

I. Sentiment Indicators

The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment is mostly unchanged for the week remaining at the lowest levels of the last two years.

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 remains in dangerous territory.

The VXX $ Vol fell sharply early in the week, then rebounded with the Thur/Fri pullback.

Bonds (TNX).  Bearish sentiment in bonds continues in a tight range with a slight upward trend, following rates higher.

For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment rose slightly as prices consolidated around the lower TL at 300.

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 .

And the sister options Hedge Ratio bearish sentiment .

The INT term SPX Long Term (2x/DM) ETFs (outlook two to four weeks) bearish sentiment .

The INT term NDX Long Term (2x/DM) ETFs (outlook two to four weeks) bearish sentiment (no chart. see QQQ OI).


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 18 plus 31. Also, this week includes a look at the TLT for Dec exp. 

With Fri close at SPX 3663, options OI for Mon show strong put support at 3650 with only small call resistance up to 3700 and above.  With SCOTUS throwing out Trumps last claim to fame and the FDA approval of the Pfizer vaccine late Fri. we could see a test of the ATH Mon/Tue.

Wed has modest OI where SPX shows support at 3600 and resistance at 3700 & 3735.  Could be a setup for an FOMC pop & drop.

For Fri AM, I usually don't show the AM since the OI are largely hedged, but the small P/C may give a negative bias toward SPX 3600.

For Fri PM, SPX OI has a lot of overlap with 3550 to 3700 a possible range.  Much will depend on rollover of put support from Mon/Wed.

For Dec EOM, SPX OI continues to show 67k calls at 3515&25 for potential negative gamma.

For the QQQ (NDX/41, 12k=293), closing at 301.8/NDX 12,375, strong support remains at 290 and resistance is probably understated due to large equity call vol (mainly FAMNGS + Tesla).

Using the GDX as a gold miner proxy closing at 35.1, GDX was down slightly remaining in a tight range around the OI neutral area at 35.

Currently the TLT is 158.8 with the TNX at 0.89%, with modest support/resistance at 155/160.5 up from last weeks 155 level and could move to 160+. 

IV. Technical Other

This week I want to take a look at several of the data mining indicators.  First, looking at the VIX Buy/Sell indicator (VIX term structure + SKEW) as a base for the VIX calls and puts.  Second, the SPX ETF indicators SSO to CPCREV and SSO to ETF calls.

Somewhat similar to comparing rhe level of equity puts and calls to the Equity P/C ratio to measure extremes, comparing VIX puts and calls to the VIX Buy/Sell indicator has worked faily well as shown below.  The low level of call buying seen currently is modestly positive.

Likewise, for VIX puts, a high level compared to the VIX Buy/Sell is a SELL and is currently neutral.

For the SPX ETF indicators, the SSO/SPX term sructure (SSO to CPCREV) is coming off an extreme similar to the Sept and Oct tops.

While the SSO/SPX hedge ratio (SSO to ETF calls) is only modestly negative, so a crash is not expected (outside an external shock similar to the covid breakout).

Conclusions.   Last week's call for a modest pullback to about SPX 3650 turned out to be mostly correct as initial decline to 3660 was followed by a new high to 3715 then a move down to the 3630s, closing down about 1% at 3663.  Next a rally should follow into opt exp Fri of 2-3% likely encouraged by Trump failure to scuttle the election via the Supreme Court and approval of Pfizer's vaccine.  Given the extreme low bearish sentiment of the last six months coupled with still moderate hedging, I am still looking for a longer term bear market than we've seen the last three years, possibly extending into 2022 with an initial down leg in Jan-Feb 2021 and a final downside target of 35-40% or SPX 2000-2200.


Weekly Trade Alert.  Be on the lookout for a pop & drop from the SPX 3700+ area in hte late Wed-Fri timeframe with a target lows in the 3500-25 area by EOM.  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