After watching the seemingly never-ending bickering over a second round of post-Covid stimulus between the Senate and the House, I am beginning to wonder if this will not be the "cause" of the next bear market in stocks. Typically when the economy is strong as in the first 3 years of the reign of Trump, DC gridlock is a good thing, but when the economy is floundering as it has been doing post-Covid, strong leadership may be essential to steer the economy forward. The lack of strong leadership under Trump (denial that problems even exist, first covid and lately cybersecurity) are the reason the US is lagging the recovery seen in many other countries.
For the week expectations were that the SPX would push upwards to new ATHs for Dec Optn exp with the potential for a pop & drop toward the EOM to the low 3500s. Mon opened down, reaching 3650 before a reversal began pushing the SPX up to a 3727 ATH before a drop to 3686. Early Fri AM I warned in the update that with the focus on a new stimulus package that may not be the final high with talks dragging on onto the weekend, and with OI put support at 3700 a strong rally the last few minutes pushed prices back over 3700. Next weeks SPX options OI show that more strength is possible Mon/Tue, but weakness may return Wed/Thu.
I. Sentiment Indicators
The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment was relatively unchanged for the week.
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 increased slightly as a pickup in intra day volatility resulted in an increase in the VXX $ Vol below.
The VXX $ Vol increased slightly due to the 50 and 40 pt swings in the SPX seen on Mon and Fri.
Bonds (TNX). Bearish sentiment in bonds is slowly edging higher following rates higher.
For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment rose moderately, even though prices rose for the week.
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 spiked higher early in the week then fell back to unchanged.
And the sister options Hedge Ratio bearish sentiment fell for the week, remaining at levels conducive to moderate corrections.
The INT term SPX Long Term (2x/DM) ETFs (outlook two to four weeks) bearish sentiment remains near levels seen at other corrections.
The INT term NDX Long Term (2x/DM) ETFs (outlook two to four weeks) bearish sentiment has now fallen to the lowest levels seen since Mar, slightly below the levels at the Feb top. Although not the lowest levels of the past three years, sentiment is now about the same as the Sept-Oct 2018 top.
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. Also, this week includes a look at the GDX for Jan exp.
With Fri close at SPX 3709, options OI for Mon are small with a large spread at 3700 that may keep prices near that level, but there is little put support at lower levels and no large call resistance until 3800, so a large intra day range is possible.
Wed has very small OI except for large put support at at SPX 3450. Essentially anything is possible.
For Thur (closed Xmas Fri), SPX OI is somewhat larger with a negative bias toward 3650-3700.
For Dec EOM, still little put support above 3600 with the large call OI at 3510 & 15 likely to create a negative event.
For the QQQ (NDX/41, 12.3k=300), closing at 310/12,738, show a negative bias toward 300 with strong support at 290.
Using the GDX as a gold miner proxy closing at 36.6 shows large call resistance at & above 38 with weak put support starting at 35.
Currently the TLT is 156.4 with the TNX at 0.95%, .
IV. Technical Other - N/A
Conclusions. There were some interesting and conflicting analyst projections last week as B of A's M. Harnett's post on ZH was that the B of A composite model had reached the official sell level matching the last sell Feb 2020, while the well-known market timer Tom DeMark came out with a prediction that the SPX was headed for 3907 the next few weeks before a top. DeMark's last referenced call was in July after the June drop of about 250 pts (200 in one day), also calling for a strong rally, which was correct, however, sentiment was much more bearish. It is possible that a similar sharp drop from SPX 3750ish to 3500 could also create strong bearish sentiment resulting in a strong rally in Jan, possible if the GOP wins the Georgia Senate runoffs and the market celebrates a "last hurrah" for gridlock.
Weekly Trade Alert. Same as last week. Either a "sell the news" if stimulus approved, or "loss of hope" if not approved by Wed/Thu, will likely see a "pop & drop" from about SPX 3750 to low 3500s. 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