Summer Blues

It seems like every month I get thrown off during options exp week.  Typically, during a topping process you will see a higher volume Fri exp as distribution when prices are at/near a top, while accumulation occurs at price lows.  So this weeks action indicates that a sharp move downward as many are expecting is probably several months away.  I still believe a pullback of about 4% is likely in the month of Aug to test the SPX 50 SMA with an INT top expected Sept-Oct (2018 deja vu?).  Several indicators in the main section are indicating similarity to Dec 2019-Jan 2020 where a 4% pullback preceded a runup into the Feb high.

One of the large cap tech stocks I have been watching for clues as to market direction is APPL.  I am not sure how this would "count" in EW terms, but similar to the DAX, AAPL has a nearly perfect diagonal price pattern which looks like an "expanded flat" for a 3rd wave.  From the Sept 2019 and Feb 2020 the top TL is increasing at about $0.50/wk.  Notice that July opt exp started a small pullback in APPL but after the EPS release at EOM the stock went up 50% in Aug.  EPS this July is on the 28th and at that time the top TL projects to about $154.30.  We could see an ST top for SPX/NDX by early Aug if AAPL tops.

The Investment Diary has been updated to provide info for the Composie Put-Call Indicator covered in this weeks Tech/Other section.

I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. 1st is the SPX and ETF put-call indicators (30%), 2nd the SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility ratio of the ST SPX (VIX) to the ST VIX (VVIX) with the VXX $ volume.

The extreme lows seen last week produced a pickup in volatility and could be a duplication of the end of Dec 2019 which saw a slightly higher high early Jan 2020 before a 4% pullback and a move to an INT high in Feb.  Several other indicators are also similar to this period.

The ST Composite as 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%.

Last weeks pullback/volatility pushed the ST Composite back to a weak Buy, suggesting that a rally to test/best the ATH may be seen by EOM.

Bonds (TNX).  Bearish sentiment in bonds is slowly declining as rates continued to fall in spite of higher inflation as the covid "rebound" seems to be faltering in economic growth indicators.

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.

The HUI 260 area continues to hold with sentiment mostly unchanged.

II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

The DM/SM Indicator made a new multi-year low before a slight rebound where each of the last three INT tops saw increasingly lower sentiment 1-3 months before the top, then increasingly larger declines.  This may be signaling a decline larger than the Mar 2020 decline.

And the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns) also moved up strongly last week nearing the level seen at the recent SPX Feb lows. 

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 23. Also, this week includes a look at the GDX and TLT for Aug monthly exp.

With Fri close at SPX 4327, options OI for Mon has small call OI with particularly high put OI at the round numbers 4100 & 200 and high P/C overall.  Significant put support at 4335 should keep prices above that level while there is little call resistance until 4400.  Fri SPX P/C was 220% so Fri closing OI is likely higher.

With Fri options volume for Mon exp is probably more indicative of put support for Fri close and sows strong support at 4300-50 and neutral up to 4365, so a move to 4350 or higher is possible.

Wed has somewhat smaller OI where SPX shows put support at 4325 and call resistance at 4350, so an early week rally may retest the recent lows.

For Fri much of the area between 4300-50 is straddled with no direction bias, but the Fri volume P/C was huge at 244% and put support at 4300 & 4350 may indicate stronger support than shown.

For EOM the first significant call resistance is 4350, while put support starts at 4320 with continuation of current range likely.

Using the GDX as a gold miner proxy closing at 33.9, the straddle at 35 represents neutrality, while call resistance is at 36 and little put support exists until 30.

Currently the TLT is 148.2 with the TNX at 1.3%, call resistance at 150 should keep rates from falling much farther with most puts are far OTM and not likely to offer support.

IV. Technical / Other

This week I wanted to take a brief look at the Combined Put-Call Revised indicator (Equity + ETF + SPX), as it has recently fallen to a new 2107-21 low.  Yes, the Equity put-calls do provide some distortion, but still you wonder how long this can go on.

Backing out the Equity p&c shows a lot of similarity to Dec 2017 and 2019 about 3 mns before an INT top.  In both cases, there was a second spike down in bearish sentiment before the INT top, but Oct-Dec 2018 was somewhat different.

Conclusions.  As I warned last week ST indicators were somewhat positive which pushed the SPX to ATHs early in the week, but the increasingly extreme weak bearish sentiment for the INT/LT indicators led to weakness later in the weak.  Next week is much the same only ST indicators are even more supportive and may allow for one more rally to test/best the ATHs before a larger pullback, possibly to the SPX 50 day SMA (current 4240).  With APPLs EPS scheduled for July 28th that may be an important date to start watching for a ST top.

Weekly Trade Alert.  Next week may consist mostly of backing and filling from SPX 4320-75 before a potential breakout near the EOM.  Updates @mrktsignals.

Investment Diary,  Indicator Primer,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021 (in progress),
 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

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