A couple of weeks ago I was expecting a 3-4% pullback in the SPX from the 4118 high and I also warned about a fake out early May to catch the seasonal trend followers off guard. The result was a move to a slightly higher high (4238) before the real decline which marginally exceeded 4% at 4158. Normally at this point I would expect a retest of the lows before a stronger rally into a June INT top, but the rapidity of the declines of the last two weeks has caused a very sharp increase in SPX put OI below 4150 and very high VXX $ Vol over 3X daily avg just below the June 2020 low level.
As the charts below will show, indicators that include volatility "bets", ie options and VXX $ Vol would appear to support a sizeable rally, but the ST NYSE volume indicators are just above neutral while the INT SPX and NDX ETFs were largely unchanged. I should have paid more attention to the ST NYSE volume indicators which showed the highest correlation to week two, but live and learn. Again, the most likely outcome seems to be a consolidation between SPX 4150 and 4225 for a week or two before a final move up into June.
Many of the long term readers know that half of my targets for the next week or two happen in a much shorter time period and it always seems like someone with deep pockets is looking over my shoulder.
I. Sentiment Indicators
The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment rallied sharply based on indicators that include volatility "bets", ie options and VXX $ Vol.
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 has rallied more strongly (due to VXX $ Vol) matching levels see at the Sept & Oct 2020 declines, where Sept consolidated before besting the previous lows and Oct continued to rally.
This week I have decided to start showing the NYSE volume ratio indicators as a very ST (1-4 week) indicator including the VXX $ Vol as a possible replacement for the above Short Term Indicator. See Tech/Other for discussion. This indicator failed to reach levels seen at prior bottoms.
Bonds (TNX). Bearish sentiment in bonds took a moderate pickup based on rising inflation.
For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment is presented in a new format using the data mining software to add the inverse TNX rate to the ETF ratio. Sentiment saw a modest uptick as prices moved over 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 has moved to levels that marked many ST bottoms over the last year (also Jan 2020 lows).
And the sister options Hedge Ratio bearish sentiment is somewhat similar, but slightly weaker.
Since the ETF ratios have performed as well or better than the individual data mining equivalents, I am using a ratio composite of the INT term SPX LT (2X) ETFs (outlook two to four mns) as bearish sentiment. This is an INT to LT indicator and saw very little change and may be following the setup of Jan-Feb 2020.
The INT term NDX Long Term (2x/DM) ETFs (outlook two to four weeks) bearish sentiment saw only a small movement given the decline of 8% with a 50% retrace. It is possible the NDX is forming a H&S into a June high.
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 May 21 & EOM.
With Fri close at SPX 4174, options OI for Mon are somewhat light, but high P/C will likely push prices to test/best the 4200 area with call resistance at 4210 and put support at 4150 and 4175. Many seem to be expecting a similar selloff to start the week as the last two weeks.
Wed has somewhat larger OI where the SPX could drop down to the 4150 area.
For Fri, there is moderate put support at 4150 and 4175 with call resistance at 4225 and 4250.
For the EOM moderate put support exists at 4175 and call resistance at 4200 to 4250.
IV. Technical / Other
Comparing the ST Composites based on the correlation with future returns, the NYSE volume ratios are much stronger for the 1-3 week period, but the ST Composite is similar for the 1-3 month period.
In addition to the NYDNV/NYUPV & NYDNV/NYDEC volume ratios discussed last week and shown below, I still wanted to include the VXX $ Vol. The NYSE volume ratios are wtd at 80%.
With the VXX $ Vol, I decided to use the same approach used with a VIX call indicator used several years ago and compare the VXX $ Vol SMA to the SPX Trend defined as the % above/below the 10 day SMA. The VXX $ Vol indicator is wtd as 20%.
Conclusions. Overall sentiment is somewhat mixed as options and volatility indicators support higher prices, while SPX and NDX are looking very much like the Jan 2020 lows before a final rally into the Feb top. A drop in the NDX to the 12400 area before the end of May could be a warning of an impending H&S top around 13.8K.
Weekly Trade Alert. Last week was a miss with a woops I missed it decline, although the following rally could be the BTFD for everyone's retirement contributions. Looking for trading range 4150-4225+. 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
© 2021 SentimentSignals.blogspot.com
No comments:
Post a Comment