Markets Remain on Borrowed Time, but for How Long?

Last weeks outlook for a move to SPX 4350 based on SPX option OI support levels proved fruitful with Wed drop to 4440 before closing at 4465 and Thur gap open to 4430 before closing at 4457.  Remember that options OI support is most effective at the close, so intra day violations are to be expected.  The main culprit seemed to be China's retaliation to the US sanctions on exporting advanced chips by blocking the use of iPhones for government employees as a security risk which resulted in an 8% drop in AAPL at the lows.  China's announcement of the development of their own advanced chip, although a couple of generations behind the US, may also be interpreted as increased competition ahead.

Next week we have the important CPI/PPI inflation outlook on Wed/Thur that may move markets.  The SPX options shows the potential for a move to SPX 4500 by Wed with support around 4450, but Fri opt exp looks more ominous with BE around 4400 that may mean a move back to 4450 or lower by weeks end.  ST sentiment improved significantly last week, but remains short of the weak Buy level.  Another week of consolidation at lower levels would help improve the outlook for a larger bounce over SPX 4500.

An MW article by Ned Davis Researh.(hack, scroll top) on Fri discusses several reasons why they think that inflation and interest rates could turn higher in 2023 Q4.  Last when downloading some videos (movies & tv shows), the site I normally use began have annoying popups, so I started looking at options using the Brave  browser Shield feature.  This week I want to show how those features can be used to "hack" some of the articles that I post in the Tech/Other section.

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 slightly last week and may be following the multi-month consolidation pattern of early 2021.

Update Alt EMA. Bearish sentiment increased slightly last week and may be following the multi-month consolidation pattern of early 2021.

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 increased sharply last week from a weak Sell to neutral, but may take another few days before a ST Buy.

Update EMA. Bearish sentiment increased sharply last week from below neutral with the very ST (grn) nearing the weak Buy 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 rose sharply last week from a very ST weak Sell to a very ST weak Buy Thur lead by options FOMO and a continued high Hedge Spread.

Bonds (TNX).  Bearish sentiment remains at -1.5 SD, between the weak and strong Sells.  Int rates may stay between 4.0-4.3% for much of Sept as the "handle" of the expected cup and handle completes before a breakout.

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 high, but ETF sentiment fell as prices continue to consolidate.  Again, the mid-2018 remains a possibility if inflation pickups up in Q4 with expectations of more Fed hikes.

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 below the weak Sell level, similar to the consolidation of early 2021.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment remains high between the weak and strong Buys at +1.5 SD.  One possible analog is May of 2022, see second chart.

Taking a ST look at the Hedge Spread, bearish sentiment may be following the pattern of May 2022 where a consolidation was followed by rally, then a washout decline.

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 near the weak Sell.

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 overall remains near neutral with ETF options near the weak Buy while NDX 3x ETFs remain near the weak Sell.

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.

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 Sept 15 and EOM. 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.

With Fri close at SPX 4457, options OI for Mon is moderate with moderate put support at 4450 and could rise to 4475 with light call resistance.  Below 4450 could drop to 4400.

Wed has very small OI where SPX has less call resistance up tp 4500 and a move to SPX 4475-500 is possible.

For Fri AM strong OI is showing a negative $OI bias toward SPX 4410 while OI P/C is positive, possibly 4450 or lower.

For Fri PM strong OI is similar to AM with a lower $OI bias to SPX 4350 but stronger OI P/C, so also 4450 or lower seems likely.

For Fri EOM/EOQ strong put support at SPX 4200 & 4210 and call resistance at 4665 likely PM hedge fund, are the likely max range, and BE at 4400 indicates a sustained move over 4500 is unlikely.

IV. Technical / Other

I have four browsers that I use off and on. Chrome for most of the daily routines. Brave, a Chrome knockoff, that comes with "Shield" a built-in ad-blocker and advanced security access.  Firefox and Tor, a Firefox knockoff with built-in IP address blocking and VPN.  Last week I found several useful applications for the Brave Shield (just click on icon to rt of URL).  First, the original MW Prem articles are viewable by loading the URL then changing the advanced setting for that site to "block all cookies" which reloads automatically. Try for Ned Davis Research.  Similar for the EW authors, Avi at Seeking Alpha and Dr. Schure at Investing.com, only select "block scripts" and it will reload to view.  It also remembers site settings.

edit: 2023.09.23 As of 09.21 MW Prem no longer allows full article viewing in Brave with cookies off, but the full articles are available using Tor with the default settings.  

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 sentiment increased slightly near neutral +.5 SD, YM (DJIA) is also near neutral +.5 SD, Dow theory may keep DJIA up thru Sept-Oct.

Click dropdown list to select from the following options:

Tech / Other History
2023
   07.22 A closer look at the 1966-74 markets indicate marginal new ATHs likely around 2024 Pres election    07.08 TNX since 2020 shows bounce likely temp w/ more back&fill before rounded bottom completes    07.01 Sentiment for BKX is at warning levels, Barcharts ES sentiment is now neutral.    06.24 Another update to VIX call indicator using VIX P/C; how volatility (VIX) effects options pricing    06.17 OTDE Volume & Put/Call Ratio Drilldown - low volatility (VIX) ahead    06.10 Volatility indicators warning of a nearing top    05.20 A review of indicators that performed well in 2015s rounded top    05.13 Comparing the VIX term structure (VIX/VXV) and volatility ratio (VIX/VVIX)    05.06 A review of the current int rates (TNX), unemployment and CPI compared to the 1960s    04.29 Addressing the negative M2 growth misconception, adding Barcharts ES outlook    04.15 Several LT/INT indicators show INT gains likely (SKEW&VIX/VXV,VIX/VVIX,BPSPX&SPXADP)    03.25 Comparison of PCE inflation and TNX rates to late 1990s indicates possible tech meltup    03.18 Strong SPX volume at Mar optn exp supports Spring rally of 10%+    03.11 Low SPX P/C ratio indicates likely trading range    03.04 LT T-bonds (10/20yr) => more Fed tightening, LT NYSE Adv/Dec volume => possible ATH retest    01.28 SPX correlation w/liquidity, Fed bal sheet - Treasury Gen Acct - O/N reverse repo    01.14 Volatility indicators, ST VIX calls indicate pullback SPX 200 pts, INT/LT SKEW & VIX/VXV still bullish    01.07 Gold performance relative to int rates (TNX), and China stock market (SSEC)
2022
   12.24 Late 1960s analog, TNX,Unempl & CPI => Recession 2024-25, DJIA top Feb'66 retest late '69    12.17 A contrarian view to the consensus 2022H2 recession & bear narket low of SPX 3000    12.10 Yield curve inversion (since 1980) not perfect recess indicator compared to inflationary 1960-80    11.26 Sentiment indicators showing a sharp drop late Dec as a setup for a strong Spring rally    11.19 Sentiment indicators showing choppy move higher likely before pullback    11.05 Using the SPXADP with the VIX call only indicator improves effectiveness

Other Indicators
   U.S. 10 Year Treasury Note (TNX Rate), Futures, Extended Hours    Marketwatch Economic Release Calendar    INT/LT Rydex 3x Bear/Bull Fund Ratio    INT/LT NYSE Up/Down Volume 100 & 200 DMAs    S&P 500 Historical Charts with Inflation Adjustment    DJIA 100 Year Historical Charts with Inflation Adjustment

Conclusions.  We got the pullback last week as expected, but sentiment is not yet at the level where I would expect a move back over SPX 4500.  Next week looks like it could more of the same range of about SPX 4430-4500 with possible strength into Wed, then fade into Fri.  An early look at the SPX OI for EOM does not look promising for a move back to the upper 4500s, but a lot will depend on next weeks CPI and the following weeks FOMC decision.

Weekly Trade Alert.  SPX options OI seems to indicate a range bound market 4430-4500 with early strength into Wed then weakness, but Wed CPI will likely be a major factor.  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

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