Last weeks stock performance was pretty much as expected with continued BTFD although in a very tight range and firm resistance at the SPX 4800 level. Some volatility was expected Thur-Fri due to strong call resistance over 4700, and the SPX dropped about half of last weeks Wed decline from a Thur high of 4790 to Fri low at 4750. The last two weeks I have indicated the potential for a multi-week decline after an INT top around mid-Jan and this weeks SPX options OI supports that view with the first week of Jan showing a likely range of 4750-4800 followed by weakness starting optn exp week (inflation surprise?) continuing thru EOM with lows possibe in the SPX 4600-700 range.
I. Sentiment Indicators
The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate
components. Starting Aug 26, 2023 SPX options are removed due to extreme 0DTE volume
distortions. New weights are ETF put-call indicator (30%), SPX 2X ETF INT
ratio (40%), and 3rd a volatility indicator (30%) which combines the options
volatility spread of the ST SPX (VIX) to the ST VIX (VVIX) with the UVXY $ volume.
Update Alt. Bearish sentiment increased back above the weak Sell level.
Update Alt EMA. Bearish sentiment increased back above the weak Sell level.
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. Bearish sentiment declined sharply early in the week, reaching a weak Sell, before bouncing back late in the week.
Update EMA. Bearish sentiment declined sharply early in the week, with the VST (grn) reaching a strong Sell, before bouncing back late in the week.
The ST VIX calls and SPXADP indicator bearish sentiment remains near the strong Sell level.
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 EMA. Bearish sentiment declined sharply early in the week, with the VST (grn) reaching a strong Sell, before bouncing back late in the week.
Bonds (TNX). Bearish sentiment remains pinned to the low extreme at the strong Sell level.
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. Bearish sentiment remains between the neutral and weak Sell levels.
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 declined slightly to the weak Sell level.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment VST (grn) moved back to neutral.
A new composite SPX options indicator uses both the volume adj (1/B-A) and P/C
equivalent spread (A-B) to compensate for the discrepancy between the two.
This replaces the old SPX options indicator for the SPX ETFs + options below and the
INT/LT composite. No chart.
For the SPX, I am switching to hybrid 2X ETFs plus SPX options. Taking a look at the
INT term composite (outlook 2 to 4 mns), bearish sentiment remains slightly below neutral.
For the NDX combining the hybrid ETF options plus NDX 3X ETF sentiment with the interest rate effect,
(outlook 2 to 4 mns) bearish sentiment shows similar extremes between ETF and
options as in late 2020 which resulted in a choppy market until options
sentiment rose. Note QQQ options are optimal, but are N/A and are included
in ETF options.
Bearish sentiment remains near the lowest level of the past three years.
For the SPX combining the hybrid ETF options plus SPX 2X ETF (outlook 2 to 4 mns)
produces an indicator where, in this case, ETF options are a proxy for the SPY options.
Bearish sentiment for SPX improved slightly, but remains at the weak Sell level.
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
Jan 8, optn exp & EOM. 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 for Dec exp. A
new addition is added for OI $ amounts with breakeven pts (BE) where call & put
$ amounts cross.
With Fri close at SPX 4770, Mon markets are closed for New Years.
Wed has light OI where SPX has a large straddle that may attract prices at the 4800 level.
For Fri stronger call resistance at the SPX 4775-800 area will likely keep prices in that area. Not sure about the effect of the call dominated straddle at 5000.
For Fri 19th PM optn exp very strong call resistance down to the SPX 4650 area could push prices down to the 4650-700 area unless a lot of put support is added.
For Fri 31st EOM strong call resistance is again present down to the SPX 4650 area with the first significant put support at 4600 and could push prices down to the 4600-700 area.
IV. Technical / Other
The following uses barcharts.com as a source and discusses S&P futures (ES) as a third
venue of stock sentiment in addition to options and ETFs. The non-commercial/commercial
spread represents a LT bearish sentiment (dumb money/smart money) indicator. As explained in investopedia,
commercial investors (red) are institutions and are smart money, while non-commercials (green) are speculators such as
hedge funds and are dumb money. Here is the current barchart graph
for the S&P 500 (top) and trader positions (1st bot) with positives as net longs and negatives
as net shorts.
Bearish sentiment is represented by the spread and is positive if red > green
(Buy) and negative if green > red (Sell). ES (SPX) sentiment is
somewhat positive at
+ .75 SD, NQ (NDX) is near a strong Sell at -1.75 SD, YM (DJIA) is neutral at
-.5 SD, Dow theory may no longer support DJIA.
Click dropdown list to select from the following options:
Tech / Other History
2023
2022
Other Indicators
Conclusions. Without a strong move over SPX 4800 by mid-month, the current consolidation just below 4800 looks like a sign of weakness and opens the door for a significant correction. SPX options OI for the last half of Jan is now indicating the potential for a 3-5% pullback by early Feb that will likely be the first leg down of a multi-week correction that could last thru Mar.
Weekly Trade Alert. More consolidation in the SPX 4750-800 area is likely next week. Updates @mrktsignals.
Last weeks outlook was for possible early weakness and ending strength with
an outlook for increased volatility. Instead, the SPX started strong
reaching the 4780 level before volatility kicked in Wed with a drop of SPX 80
pts the last two hours down to the SPX 4700 pivot area. As the pivot area
held, prices recovered to be up about .5% for the week. The potential
exists for another volatility event at the EOM on Fri with strong call
resistance over 4700.
A number of INT indicators, including the hedge spread and the SPX and NDX
ETF and options indicators, are pointing to the potential for a decline similar
to Dec 2022 and Jul-Oct 2023 or about an 8-10% decline, likely 2024 Q1.
The VIX call & SPXADP indicator has moved to the strong Sell.
The Tech/Other section includes an update for the DJIA constant dollar
(inflation adj) which remains similar to the late 1960s chart shown 2022.12.24.
NDX futures has moved to a weak Sell.
I. Sentiment Indicators
The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate
components. Starting Aug 26, 2023 SPX options are removed due to extreme 0DTE volume
distortions. New weights are ETF put-call indicator (30%), SPX 2X ETF INT
ratio (40%), and 3rd a volatility indicator (30%) which combines the options
volatility spread of the ST SPX (VIX) to the ST VIX (VVIX) with the UVXY $ volume.
Update Alt. Bearish sentiment improved slightly from just below the weak
Sell level to just above it.
Update Alt EMA. Bearish sentiment improved slightly from just below the weak
Sell level to just above it.
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. Bearish sentiment saw a brief spike to start the week but ended just
below the neutral level.
Update EMA. Bearish sentiment saw a brief spike to start the week but ended
just below the neutral level.
The ST VIX calls and SPXADP indicator bearish sentiment moved from the weak
Sell el to the Strong Sell level.
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 a
addition for full discussion.
Update EMA. Bearish sentiment declined slightly.
Bonds (TNX). Bearish sentiment continues to decline, and is now
approaching the lowest level of mid-2020.
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. Bearish sentiment ETF sentiment is slightly above neutral and
improving int rate sentiment may be helping prices.
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 improved somewhat and may be following early 2021
sentiment patterns.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment seems to be sticking at the weak Sell
level with LT (blu) catching up.
A new composite SPX options indicator uses both the volume adj (1/B-A) and P/C
equivalent spread (A-B) to compensate for the discrepancy between the two.
This replaces the old SPX options indicator for the SPX ETFs + options below and the
INT/LT composite. No chart.
For the SPX, I am switching to hybrid 2X ETFs plus SPX options. Taking a look at the
INT term composite (outlook 2 to 4 mns), bearish sentiment continues to
decline, but remains well short of the SPX July high levels.
For the NDX combining the hybrid ETF options plus NDX 3X ETF sentiment with the interest rate effect,
(outlook 2 to 4 mns) bearish sentiment shows similar extremes between ETF and
options as in late 2020 which resulted in a choppy market until options
sentiment rose. Note QQQ options are optimal, but are N/A and are included
in ETF options.
Bearish sentiment is now at the lowest level of the past three years, is this
a warning for the Jan earnings season?
For the SPX combining the hybrid ETF options plus SPX 2X ETF (outlook 2 to 4 mns)
produces an indicator where, in this case, ETF options are a proxy for the SPY options.
Bearish sentiment for SPX is more bullish than for NDX, but is approaching
the levels of Dec 2022 and July 2023 which saw declines of 350 and 500 SPX pts.
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
Dec 29. A text overlay is used for extreme OI to improve readability,
P/C is not changed. A new addition was added for OI $ amounts with
breakeven pts (BE) where call & put $ amounts cross.
With Fri close at SPX 4755, markets are closed Mon. Merry Christmas.
Wed has moderate OI where SPX has call support at 4740 and 4800 that may have
a positive influence, but could be over shadowed by Fri call resistance.
For Fri EOM strong SPX OI shows call resistance down to 4725 and little net put
support until the low 4600s. The large call position at 4515 (JPM hedged
fund?) may also have a negative influence.
IV. Technical / Other
This week I wanted to take a brief look at the inflation adjusted DJIA. In
Dec 2022 I showed the.inflation adjusted DJIA form the Feb 1966 as a potential
analog for the current outlook (see Tech/Other 2022.12.24 link). In the
1960s and 70s, Tthe DJIA topped several times at 1000 before inflation, but
never reached the Feb 1966 ATH after inflation. Although the DJIA has gone above
the Jan 2022 constant dollar high at 37k, it remains below the inflation adjusted ATH, but
does seem to be slightly stronger than the 1960s.
The following uses barcharts.com as a source and discusses S&P futures (ES) as a third
venue of stock sentiment in addition to options and ETFs. The non-commercial/commercial
spread represents a LT bearish sentiment (dumb money/smart money) indicator. As explained in investopedia,
commercial investors (red) are institutions and are smart money, while non-commercials (green) are speculators such as
hedge funds and are dumb money. Here is the current barchart graph
for the S&P 500 (top) and trader positions (1st bot) with positives as net longs and negatives
as net shorts.
Bearish sentiment is represented by the spread and is positive if red > green
(Buy) and negative if green > red (Sell). ES (SPX) sentiment is neutral at
+ .5 SD up from .0 SD, NQ (NDX) is at a weak Sell at -1.25 SD, YM (DJIA) is
neutral at -.25 SD, Dow theory
may support DJIA thru EOY.
Click dropdown list to select from the following options:
Tech / Other History
2023
2022
Other Indicators
Conclusions. The markets seem to be forming a topping pattern that
may take several weeks to complete. The unexpected selloffs as we saw on
Wed are likely institutions unloading large positions with decling volume.
This is likely to continue with the public buying the dips until there is a more
obvious reason to sell. The reason could be geopolitical (Ukraine gives
up, M.East), but the timing looks like it could coincide with earnings season starting
mid-Jan where Fedex's one day drop of 11% may be a preview.
Weekly Trade Alert. Fri EOM shows the potential for more
volatility, but EOQ window dressing may be an offset. Updates @mrktsignals.
One of the main benefits of using a stastical approach to measuring sentiment
is that it relieves most of the effects of cognitive bias which is the biggest
reason most think that if markets are going down they will keep going down and
the opposite if going up. Just as many at the end of 2022 were calling for
the SPX to continue lower in 2023 below the 3000 level, many are now calling
for SPX 5000 or higher in 2024. Perhaps higher prices are possible ST into
early 2024, particularly if int rates continue to fall, but the logic behind the
current bond rally seems flawed. One thing that most ignored in the last
CPI report was that wages increased 0.4% MOM or 5% annualized. I have
predicted that the next round of inflation would be from higher wages (from
strikes, continued demand) and will represent the early stages of a wage-price
spiral. As businesses have to pay more for labor, they then have to raise
product prices to keep the same margin and a circular process begins. All
of the int rate cuts expected by the Fed are based on previous rate hiking
cycles that ended in recessions, and cutting rates if the economy remains strong
just increases inflation.
Bearish sentiment dropped sharply last week after the "Fed pivot" speech by
Powell which caused the TNX to drop from 4.3% to 3.9% and TLT jumped 5%
with a 2.5% increase in SPX. Although my range target was SPX 4250-4650
thru mid-2024, my caveat was that if rates continued to fall SPX would continue
to rally. I still think the bond market is wrong, but that is my bias.
I. Sentiment Indicators
The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate
components. Starting Aug 26, 2023 SPX options are removed due to extreme 0DTE volume
distortions. New weights are ETF put-call indicator (30%), SPX 2X ETF INT
ratio (40%), and 3rd a volatility indicator (30%) which combines the options
volatility spread of the ST SPX (VIX) to the ST VIX (VVIX) with the UVXY $ volume.
Update Alt. Bearish sentiment saw a sharp drop from - .5 SD to -1.0 SD, a
weak Sell level.
Update Alt EMA. Bearish sentiment VST (grn) sentiment dropped very sharply
last week but several more weeks may be needed to reach the July levels for the
LT sentiment for an INT top.
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 EMA. Bearish sentiment remains just above the weak Sell level.
The ST VIX calls and SPXADP indicator bearish sentiment remains between the
weak and strong Sell levels.
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 EMA. Bearish sentiment continued to decline as hedging continues to
fall.
Bonds (TNX). Bearish sentiment has dropped below the strong Sell
level with the TLT completing a 23% retracement from the 160+ level to 82 with a
move to 100.
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. Bearish sentiment rremains below neutral with a sharp rise in
bearish ETF sentiment.
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 remains near the weak Sell level and well above
the level seen before the July top.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment has reached the weak Sell level but
several more weeks may be needed to reach the levels at the July top.
A new composite SPX options indicator uses both the volume adj (1/B-A) and P/C
equivalent spread (A-B) to compensate for the discrepancy between the two.
This replaces the old SPX options indicator for the SPX ETFs + options below and the
INT/LT composite. No chart.
For the SPX, I am switching to hybrid 2X ETFs plus SPX options. Taking a look at the
INT term composite (outlook 2 to 4 mns), bearish sentiment remains about the
same.
For the NDX combining the hybrid ETF options plus NDX 3X ETF sentiment with the interest rate effect,
(outlook 2 to 4 mns) bearish sentiment shows similar extremes between ETF and
options as in late 2020 which resulted in a choppy market until options
sentiment rose. Note QQQ options are optimal, but are N/A and are included
in ETF options.
Bearish sentiment saw a very sharp drop with ETF options sentiment crashing
from the extreme highs seen early Oct. Sentiment has now reached the
lowest levels of the last three years.
For the SPX combining the hybrid ETF options plus SPX 2X ETF (outlook 2 to 4 mns)
produces an indicator where, in this case, ETF options are a proxy for the SPY options.
Bearish sentiment for SPX has joined the NDX with sentiment now approaching
the levels of the July price highs.
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 Dec 22. 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 & TLT for Jan exp.
A new addition is added for OI $ amounts with breakeven pts (BE) where
call & put $ amounts cross.
With Fri close at SPX 4719, options OI for Mon is moderate with call resistance
from 4700-800 with put support from 4600-25. A small pullback to 4700 or
lower is expected.
Wed has somewhat smaller OI where SPX has put support at 4675.
For Fri SPX OI shows strong call resistance from 4650 to 4700, but little
resistance above 4700. Delta hedging may push prices higher if over 4700,
else 4600-50 is possible.
For Fri EOM strong SPX OI indicates the potential for a drop to 4600 or lower,
but as last week support from lower int rates will likely offset sentiment.
Using the GDX as a gold miner proxy closing at 30.5 is at call resistance and
could go either way.
Currently the TLT is 99.2 with the TNX at 3.9%, here, prices have out run
resistance and a 99-102 range is likely ST.
IV. Technical / Other
The following uses barcharts.com as a source and discusses S&P futures (ES) as a third
venue of stock sentiment in addition to options and ETFs. The non-commercial/commercial
spread represents a LT bearish sentiment (dumb money/smart money) indicator. As explained in investopedia,
commercial investors (red) are institutions and are smart money, while non-commercials (green) are speculators such as
hedge funds and are dumb money. Here is the current barchart graph
for the S&P 500 (top) and trader positions (1st bot) with positives as net longs and negatives
as net shorts.
Bearish sentiment is represented by the spread and is positive if red > green
(Buy) and negative if green > red (Sell). ES (SPX) sentiment is neutral at
+ .0 SD, NQ (NDX) is negative at -.5 SD, YM (DJIA) is neutral at .0 SD, Dow theory
may support DJIA thru EOY.
Click dropdown list to select from the following options:
Tech / Other History
2023
2022
Other Indicators
Conclusions. Some of the INT sentiment indicators are at or below
the Levels of the July price highs (esp NDX), while the ST indicators (ex VIX
Calls) still indicate that a few weeks may be necessary before a substantial
decline begins, likely by mid-Jan. One of the things I like to see is a
high volume climax in buying/selling at the quarterly opt exp for an INT turn,
and previous occurrences were June 2022 and Mar 2023 lows. Last weeks
Thur/Fri volume was twice the average. Again int rates will likely
determine the direction of stock prices, but I expect a consolidation of about
SPX 4650-4750 thru mid-Jan.
Weekly Trade Alert. An increase in volatility is likely with
weakness early in the week. the SPX 4700 level is the important pivot for
EOW prices with downward pressure below and the reverse above. Updates @mrktsignals.
