Last week went mostly as expected, but in the somewhat familiar accelerated time frame. Initially there was a lot of optimism regarding the peace talks between Russia and Ukraine. This pushed the expected rally in the SPX to 4600+ (4637 act ) by Thur EOM forward by two days with a sharp drop in oil prices and int rates (TNX). As mentioned several times over the past two weeks, higher rates are expected to be a positive and lower as negative, so this was a warning, and late Wed a reversal began toward the Fri target of 4550 or lower (act 4507). With the drop in int rates, the 2017-18 SPX analog becomes more viable as does the 2011 analog of the SPX "death cross" where a two day recovery rally over the major MAs (50, 100, & 200 SMAs) led to an eventual retest of the prior lows in 4-6 weeks. Comparing 2011 to todays market, this implies SPX at 4300-4350 around the May 4th FOMC when a 0.50% rate hike is looking more likely (more in Tech/Other).
It looks like last weeks VIX options OI was correct in predicting higher prices ST, while the VIX call indicator was vindicated for its Sell with the Wed-Thur pullback. A closer look at the SPX analog for the 2011 analog looks like it may be the best option for todays market and is discussed in the Tech/Other Section. A link has been added to the bottom Investment Diary section for previous Tech/Other sections in 2022.
Bearish sentiment continues to fall for the INT/LT indicators and last weeks declines satisfied to bearish out for ST indicators that have moved to neutral. The outlook for the next week or so is a consolidation between 4450-75 and 4550-75 with a possible breakdown the last half of Apr.
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 UVXY $ volume.
Update. Bearish sentiment has fallen sharply, now nearing the neutral zone.
Update. Bearish sentiment has bounced from the weak Sell area, now nearing the neutral zone.
Update. Bearish sentiment has fallen below neutral lead by SPX FOMO while the Hedgespread lags.
Update ema. Bearish sentiment bounced back sharply with last weeks pullback to above neutral.
Update. Momentum seems to be the main driver of this market, surprisingly gold stocks were up 1% Fri even though gold was down 1%.
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).
Update. Bearish sentiment has fallen sharply, now at the neutral zone.
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 Apr 8. A text overlay is used for extreme OI to improve readability, P/C is not changed. Also, this week includes a look at the GDX fand TLT monthly.
Most advisors seem to be looking for a continued pullback next week to about SPX 4450-75 which shows up in higher put support (P/C). With Fri close at SPX 4546, options OI for Mon is very small, but there is strong put support between 4350 and 4475. SPX 4550 is the most likely close, but below 4530 the next strong support is 4475 and above 4450 the next resistance is 4600.
For optn exp Apr 14 (Thur) stronger call resistance at 4575 and above with partial hedges down to 4425 indicating that surprising weakness may emerge mid-month, possibly due to Apr 12 CPI and Apr 13 PPI data.
For EOM Apr 29 stronger OI shows more call resistance extending down to 4400 & 4500 with put support at 4450 and 4475 and show potential for volatility between 4400-500 with most of the put support between 4275-4350.
Using the GDX as a gold miner proxy closing at 39.4, there has been surprising strength possibly due to inflation concerns, but there is little put support if inflation turns down.
Currently the TLT is 132.4 with the TNX at 2.38%, OI shows stronger call resistance to lower rates (higher TLT) at 134 and 137 with 135 hedged and less put support for higher rates.
Currently the TLT is 132.4 with the TNX at 2.38%, here an unusual pattern shows small hedged positions between 125 (TNX 2.75%) and 140 (TNX 1.75%) as likely means much uncertainty about the direction of rates..
IV. Technical / Other
This is a look at the SPX from 2011 that was used as an example several weeks ago as a bullish outcome resulting from the "death cross". After a lower retest of the initial low, a sharp rally retraced about 62% of total decline before a second retest 4-6 weeks later that retraced a little more than 50% of the decline. An equivalent second retest from the 2022 lows of 4115 to 4637 is about 4350. The circled area shows a potential topping pattern before a breakdown. The next low would likely be early May.
Comparing the above to the SPX today, you can see the lower low after about a 50% retracement, then a sharper rally to retrace 62% of the entire decline with a sharp reversal after a breakout over the major SMAs. If a triangle occurs, the initial low should be 4450-75, then continue into mid- late-Apr before a breakdown. One possibility for the next low is the May 4 FOMC where we might see a 0.50% rate hike.
Conclusions. Last weeks SPX rally to over 4600 and subsequent pullback to 4500-50 were not unexpected although the timing was faster than expected. The so-called "death cross" has proven to be less than deadly, at least for the ST/INT and more upside is expected LT, although a sizeable pullback is likely late-Apr and early May. Using the 2011 analog has so far provided a valuable guide and now shows that a ST top is near with the potential for a pullback to the SPX mid-4300s by early May. INT/LT bearish sentiment has retreated to near neutral, but is likely to reach the Sell level before the next major decline (10%+).
Weekly Trade Alert. The next two weeks are likely to be a consolidation between 4450-75 and 4550-75 with weakness possible by optn exp Apr 14. Updates @mrktsignals.
Investment Diary, Indicator Primer, Tech/Other Refs,
update 2021.07.xx Data Mining Indicators - Update, Summer 2021,
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
© 2022 SentimentSignals.blogspot.com
I truly appreciate the time and work you put into sharing your knowledge. I found this topic to be quite effective and beneficial to me. Thank you very much for sharing. Continue to blog.
ReplyDeleteData Engineering Services
AI & ML Solutions
Data Analytics Services
Data Modernization Services