Is It Time to Revisit 2015?

Last weekends post was expecting a rally based on the first Buy recorded by the new ST Composite (NYDN volume + VXX $ Vol) and I was surprised by the strength of the move which was likely the result of the anticipated infrastructure/stimulus bill as I did not expect passage until the Fall.   Now everyone is expecting the SPX to continue powering higher although it is only 1/2% higher than two weeks ago.  What most seemed to have missed is that Fri CPE inflation used by the Fed came in at a 30 year high and may have started the next up cycle in int rates.

Sentiment remains somewhat of a mixed bag and is likely to take several more days of up to sideways action before a directional change.  Fri July 2 is the payroll report for June and is expected to be strong and typically produces a ST top.

The Tech/Other section makes some comparisons to the May 2015 top where an analog could see an SPX 150-200 pt pullback into late Aug.  Also included is a comparison to the VIX Buy & Sell components of 2015 and today.

I. Sentiment Indicators

The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment is mostly unchanged as the SPX has increased 1/2 % over the last two weeks.

The ST Composite is a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the VXX $ Vol/SPX Trend. Weights are 80%/20%.  After showing a strong BUY on the decline two weeks ago, it still remains over neutral supporting modestly higher prices in the ST.

Bonds (TNX).  Bearish sentiment in bonds has fallen to near the recent lows and last weeks CPE may be the start of the next move higher as an IHS still looks possible.

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.  Not much change for prices or sentiment although the gold bugs must be perplexed at the lack of response to higher inflation.

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 remains mostly unchanged and near the level of the Jan-Feb 2020 top.

And the sister options Hedge Spread bearish sentiment as a ST/INT indicator (1-3 mns) remains near neutal with no clear directional bias.

The ETF ratio of the INT term SPX INT (2X) ETFs (outlook two to four mns) as bearish sentiment shows a modest pullback.

The INT term NDX ST 3x ETFs (outlook two to four mns) bearish sentiment is nearing recent lows and may reach a Sell by EOW.

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 July 2.

With Fri close at SPX 4281, options OI for Mon-Fri are mostly consistent with moderate to strong call resistance at 4275+ and put support at 4200 with the potential for a modest pullback to 4225-50.

Wed is much the same.

Fri (jobs report) is much the same.

SPX vol shows a somewhat different story as weakness appears to be more likely early in the week with a move back to the 4275+ area possible with Fri jobs report.

IV. Technical / Other

With the SPX reaching my INT target of 2X the 2015 high of 2135 in the 4270-80 area which does seem to be providing some ST resistance, I thought it might be interesting to review some comparisons between then and now.  Sentiment indicators remain short of Sell levels, however, so higher prices of SPX 4300-50 can not be ruled out.  The May top showed about a weeks consolidation before beginning a 4% pullback so a consolidation next week may allow sentiment to turn negative enough to support a 150-200 pt pullback thru late Aug.

First looking at some of the indices, in 2015 the DJTA, which is considered to be a measure demand for goods thru shipping volume, topped out in late Feb, 4 months before the SPX and DJIA.  This year both DJIA and DJTA appear to have topped out in early May.  Int rates were rising off of multi year lows.  The SPX continued to be held up for several months past the DJIA due to strength in the NDX.

Next, I want to look at volatility measures, namely the VIX Buy & Sell components, the SKEW and VIX term structure (VIX/VXV).  As pointed out two weeks ago. the VIX B&S was showing a similar setup to the Sept-Oct 2018 top with the SKEW at historic levels.  This has been commented on by others, including Fri by GS, and Fri the SKEW powered higher by 10 pts to 170.  As it turns out 2015 also saw a historic level in the SKEW, in late Oct, two months before the Jan 2016 15% correction as seen in the chart below.

The VIX B&S worked well in 2015, but notice that similar to 2018-21 most of the ST tops were indicated by lower levels of VIX/VXV sentiment and the more serious Dec top stands out as the one where the SKEW showed lowest sentiment.  Aug and Oct 2014 are also notable.

The relationship between SKEW and VIX/VXV is examined further with the Dif function below.  Lower VIX/VXV were notable before the May 2015 top and Aug flash crash.  As evidenced at the Oct 2018 top, the Nov 2015 top did not show a Sell until the levels of SKEW and VIX/VXV matched and I expect the same in 2021.

Conclusions.   Seattle is expected to be only two degrees cooler than Las Vegas on Sunday at 105 F, I am sure glad I don't believe in global warming.   The only other thing hotter than the stock market seems to be the SKEW which seems to be discounting an alien (UFO) encounter.  Unfortunately, sentiment is not giving a lot of indication of which way stocks are going, but hopefully next week will give some indication.  Fri jobs report is often a ST high, but SPX options OI is showing stiff resistance over 4275 with support around 4225.  Hopefully in July I will have the time to document some of the new data mining indicators with a new chapter for the Investment Diary.

Weekly Trade Alert.  Any weakness early in the week will likely be followed by a move up to test/best ATH on 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

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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