All Roads Lead to Nowhere

Last week the SPX was expected to start with a trading range around 4130 and Mon ended up dropping to 4063 before rallying to 4160s.  Tue options OI was a bust, but Wed saw a strong post-Fed rally to just tag the 4300 target, then gave it all back on Thur.  May 14 Bradley turn is date still looking good for a low.  Next week sees the Apr figures for CPI Wed and PPI Thur and may provide the catalyst of a swing/INT low.

Int rates (TNX/TLT) remain a key driver of SPX ST prices and if you were watching Fri AM an early rise in rates (TNX) by 75 BP (.075%) was followed by a 75 pt drop in the SPX over the next couple of hours, while a decline in rates preceded a PM rally.  The ST/INT outlook for rates is somewhat uncertain, but as shown in the TLT/TBT sentiment chart, with the TNX now at 3.12% it is very near the IHS INT target of 3.25% and that may mean a top in rates for a few months.  Also, an EW perspective of the inflation rally for TNX since Russia invaded Ukraine shows a 5 wave structure from 1.7% with a (+.8%) > c (+.65%) > e (possible +.5%) to 3.25% (supporting IHS target).

This weeks sentiment is showing increasing possibility of both a ST and INT/swing low approaching, but as noted above the durability of any rally is going to depend on the ST trend in int rates.  The most likely outcome seems to be a summer, fall and Xmas rally before a more serious downturn.

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 continued to rise last week reaching the Buy levels comparable to the pullbacks of late 2020, but less than the level of the Feb 2022 selloff.  A less dramatic, but possibly longer lasting rally is expected than seen in Mar 2022, possibly to the SPX 4700s by the midterm elections.

The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the UVXY $ Vol/SPX Trend. Weights are 80%/20%.

Update.  Extreme levels of UVXY $ Vol typically precede a significant bottom, but sometimes occur before a final bottom.

Update.  ST EMAs have now reached a Buy spike last seen in June and Sept of 2021 where a ST bounce of a few days preceded a final low before a significant rally.  Lows may be in by the EOW.

The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

Update.  LT pre-Covid Fed view shows bearish sentiment similar to late Jan and Feb 2022 bottoms, but not at major bottom levels, so a corrective rally but not a new bull market is expected.

Update ST/INT EMA bearish sentiment is now higher than at the Jan and Feb 2022 lows, indicating that a stronger rally is expected, but the stair-step pattern like the late Feb pattern may mean a period of basing is ahead before a significant rally.

Bonds (TNX).  Bearish sentiment in bonds remains in a modestly supportive area, but unlikely supporting a final top in rates.  The IHS target of 3.25% is extremely close and may indicate a consolidation between 2.75% and 3.25% for 4-6 months that would likely see a sizable rally in SPX, but a move higher in rates is likely by EOY.

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.

Update.  The freefall in HUI seems to have slowed, but sentiment remains at the Sell level and any sign of slowing in inflation could start another sharp decline.

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 is now almost back to the levels of early Mar and may mean a rally back to the SPX 4600s or higher is likely INT.

With the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns), LT pre-Covid Fed view shows that increased hedging is still well below the pre-Covid levels and is unlikely to support a rally to major new highs.

Taking a look at the ETF ratio of the INT term SPX INT (2X) ETFs (outlook 2 to 4 mns) as bearish sentiment, sentiment declined slightly during the week, but remains well above the Buy level.

Using the TNX plus ETF sentiment shown for the HUI as the NDX sentiment with the interest rate effect.  The INT term NDX ST 3x ETFs + TNX (outlook 2 to 4 mns) bearish sentiment using the faster EMAs also shows a move to the strongest bearish sentiment since Dec 2018.  Combined with the likelihood of int rates (TNX) topping, this means that the NDX may become the leader of the coming rally likely into the Fall.

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 13. A text overlay is used for extreme OI to improve readability, P/C is not changed.  A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross plus $ volume.

With Fri close at SPX 4123, options OI for Mon is modest with strong put support at 4150 and moderate at 4200.  A strong rally to SPX 4200+ is possible.

Wed has small OI where SPX has some out support at 4100 and 4150 and call resistance at 4200 and 4300 with no strong up/down bias.

For Fri strong put support at SPX 4000-200 indicates that any weakness mid-week is likely to be reversed by EOD.

IV. Technical / Other - N/A


Conclusions.  With the coming Bradley turn date next weekend, the SPX could see an important bottom by Fri or early next week.  I am leaning toward a positive start to the week as follow thru to last Fri late turn around and some optimism into Wed/Thur inflation data, however, inflation is likely to disappoint sending SPX back down to the low 4000s into Fri AM and a more durable turn around Fri afternoon if TNX rates hold the 3.25% level.  A move to TNX 3.5% will probably lead to a washout early week after next.

Weekly Trade Alert.  Ideally, I would like to see an early week rally to SPX 4200+ followed by a mid- late week washout to 4040-60 by Fri AM before a sustained rally begins.  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