Was That the Beginning of the End for Techs?

Last week I had hoped to catch up on my sleep.  Although not as bullish as many who were expecting a direct route to SPX 4800-5000, the Tue downgrade of AAPL took me by surprise.  Tech sentiment (NDX ETFs and ETF options) had been warning of trouble brewing in the tech sector, and last week showed the results with AAPL down 10% (or 62% of Oct-Dec run), NDX down almost 6%, SPX down 3% and DJIA down only 1.5%.  The results were in line with the "cyclical recovery" outlook from a couple of weeks ago with strength in DJIA, weakness in bonds with TNX back over 4%, and weakness in techs.  The jobs market also continued strong with 216k jobs added and the unempl rate remaining at 3.7%, also wage growth continued strong at .4%.

The next two weeks could be very interesting as weakness last week has the bears roaring again which sent the Hedge Spread indicator to a weak Buy and has increased SPX optn OI put support strong enough that a rally next week back to the SPX 4775 is likely, while optn exp week (rwo weeks out) indicates lower prices in the SPX 4625-75 are still likely.  In addition, futures (COT) show increased bullishness for NDX (NQ) at -2.25 SD and DJIA (YM) -1 SD.

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 continued to increase back to neutral, but well below a Buy level.

Update Alt EMA. Bearish sentiment continued to increase back to neutral, but well below a Buy 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 rose but remains near neutral.

Update EMA. Bearish sentiment rose but remains near neutral.

The ST VIX calls and SPXADP indicator bearish sentiment rose to near neutral, mpving above a weak Buy.

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 as hedging increased with the VST (grn) at neutral, while the LT (blu) remains at the weak Sell.

Bonds (TNX).  Bearish sentiment remains at a strong Sell extreme as rates rose from the prior weeks lows near 3.8% to just over 4%.

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 near neutral overall, with the ETF sentiment rising with the pullback in 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 rose but remains near the weak Sell level.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment rose sharply last week, moving from neutral to a weak Buy for the VST (grn).

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 just 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 rose sharply for the ST ETF option component with the 3X NDX ETF unchanged, now between the Weak and strong Sell levels.

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 and  has increased to near neutral.

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 12. 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 4697, options OI for Mon is moderate showing put support below 4700 with a likely close between 4700-25.

Wed has somewhat smaller OI where SPX has more put support at higher levels and may target 4725-50.

For Fri SPX has strong OI with strong put support up to 4765-75 and call resistance at 4800 and may result in a reversal of last weeks losses ST.

For Fri PM opt exp SPX has strong OI with strong call resistance down to the 4650 level anc could result in a strong whipsaw over the next two weeks.

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 + .75 SD, NQ (NDX) is a strong Sell at -2.25 SD, YM (DJIA) is a weak Sell at -1 SD, Dow theory no longer supports DJIA.

Click dropdown list to select from the following options:

Tech / Other History
2023
   12.23 A quick update to the DJIA infl adj comparison presented as a possible analog Dec 2022    12.08 A look at the Feds recession indicator based on the unemployment rate using the Sahm Rule    10.21 A comparison of 5 year periods (1960s, 90s & today) for inflation and int rates (Fed funds & TNX)    09.29 A ST trend for TNX, INT/LT COT bearish for bond futures (TN), LT 20/30 yld curve    09.22 A look at Dow Theory and a DJIA diagonal and possible similarities to late 2015    09.15 Use of Brave browser Shield for enhanced internet access to some sites    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.  Recently, I was reminiscing about the DJIA as it nears 38k, and Japans Nikkei which reached 38K in 1987 and was not eclipsed until recently.  In 2015's first long term forecast (below), I opined how the stock market could continue to rally in a low growth, low rate environment and using the TNX as a discount rate in the dividend discount model, and I came up with a DJIA value of 37.2K with rates at .5%.  In 2021, TNX rates dropped to .5% and it took another year, but the DJIA topped at 37K late 2021.  Int rates have since reversed, but stocks have not yet.  When stocks do reverse, it could be dramatic and long lasting.

Weekly Trade Alert.  The next two weeks could be exciting, as SPX options OI is showing extreme bearishness next week that could push the SPX back to 4775 by Fri, then reverse back down with extreme bullishness the following week to 4625-75.  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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