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.
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