Fed-a-Palooza

I have to start paying more attention to FOMC meetings.  As an economist, I ignored all the hype about "yield curve control" without realizing that it was just a bull trap.  As a result Wed saw the SPX hit my INT/LT target of 3980-90 and then reversed sharply with the rise in TNX over 1.75% and the late selloff in the NDX.  The Sell for the BKX was timely since it ended down 1.5% for the week even with higher int rates.  The subsequent decline to SPX 3886 probably means a trading range for the rest of the month between 3850 and 3950.

Unfortunately, we did get the high vol day Fri, but with prices on the downside, it was hard to tell if it was accumulation or distribution.  One possibility is a retest of the highs in Apr, a 6-7% decline in May, then a rally back over SPX 3950 in June before a larger downturn.  The June TLT options OI seems to indicate a potential int rate consolidation that could support the SPX thru June.

In the Tech/Other section this week I look at some ST indicators using the EMA averages recently added to the data mining software.  The new options put-call indicators were little changed and should be covered next week.

I. Sentiment Indicators

The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment surprisingly fell last week, although the swiftness of the post-FOMC may have caught bears off guard.

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 was down much less for the week.

Bonds (TNX).  Bearish sentiment in bonds surprisingly dropped even as rates rose to new highs for the year, possibly due to stock volatility, hitting the 1.75% target mentioned previously.

For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment fell sharply as prices rose modestly as expected.

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 also fell sharply. now at the level seen prior to the Jan pullback.

However, the sister options Hedge Ratio bearish sentiment fell early in the week but did bounce back on the late week selloff.  See Tech/Other for a ST close up.

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 Mar 26. Also, this week includes a special look at the TLT for Apr and Jun exp.

With Fri close at SPX 3913, options OI for Mon shows moderate put support at 3900 and 3940 and seems to indicate a strong bounce to start the week up to the SPX 3940 level.

Wed has smaller OI where SPX has call resistance at 3950 and put support at 3850, in between are mostly hedged positions with a slightly positive bias up to 3900. A move back down toward 3900 is possible.

For Fri there is a very large straddle at SPX 3900 with a net put (positive) bias of 5000 that should keep prices above that level. SPX 3900-50 is mostly straddles with only a slight positive bias and call resistance above 3950.

For the EOM, the large strangle at SPX 3550 and 3900 is still likely to push prices below 3900.

Currently the TLT is 134.7 with the TNX at 1.73%, at this point it is difficult to tell if the large put position at 125 & 130 are smart or dumb money, now that the investing community has recognized the trend of rising rates.

To try to clarify, I decided to look at the EOQ for June since the EOQ seemed to be the "smart money" from previous quarters.  Here, we see a large range of high put positions extending from 125 up to 145 with almost no call resistance.  My take on this is that the puts are likely to provide support in the 130 to 135 range, or stabilize near current levels.

IV. Technical / Other

This week I want to look at a new feature added to the data mining software, the ability to use ST EMAs as a move one step closer to replacing the original program. This includes "close ups" of the DM/SM options indicator and hedge ratio, and the ST composite indicators Smart Beta P/C and VXX $ vol.  The following is to show compatibility with the regular DM/SM indicator.

The ST DM/SM options indicator from July 2020, shows a downward trend similar to July 2020 and Jan 2021 that may indicate several more weeks before a sharper downturn.

The ST hedge ratio remains near neutral and is likely to see lower levels before a sharp downturn.

The ST Smart Beta P/C is even more positive and suggests more of a rally, possibly to retest ATHs before a sharp decline.

The ST VXX $ Vol is in a moderately rising trend, but seems to be a better indicator of bottoms than tops and even then shows spikes on the first leg down about half the time.

Conclusions.   My oulook last week was topsy-turvy as the market's direction followed the exact opposite of int rates, but the expectation of a rally over SPX 3950 before a move below 3900 was correct.  I see little contradicting the outlook for a rounded top, but with last week's high of 3984 within the 3980-90 target range, the INT top may be in, although a challenge of that high is likely in Apr.  Otherwise, the remainder of Mar is expected to pivot around 3900, roughly in a range of 3850-3950.

Weekly Trade Alert.  A rally back to SPX 3950 is possible early next week with a decline expected to about 3850 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

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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