Last week I pointed out that several indicators (in Tech/Other) including the
Rydex 3x ETF Bear/Bull ratio and the NYSE Adv/Dec volume were at levels that
could indicate SPX 6000 may be possible, but WS came out with similar projections
and we had what seemed to be major capitulation by the bears. My in-house
indicators continue to point to simiarities to the Feb-Apr 2022 declne and
rally, and the Tech/Other section looks at the NAAIM active manager exposure
index and the Rydex ratio which also show bearish capitulation. There is
also a Bradley turn date late May, so we may see several weeks of sideways
action (similar to Dec 2015) before a significant downturn.
The LT ES expanding wedge of
Trader Joes which predicted a drop to 4800 in early Apr also
shows a top near 5600 before a drop to the low 4000s by late 2025. This
would make sense where lower prices thru the Fall would likely cause the GOP to
panic, creating a major fiscal stimulus package to save the markets, and in
mid-2026 a new "more flexible" Fed chariman is appointed by Trump and we get
monetary stimulus. The result could be SPX making new ATHs by late 2026
before the mid-term elections, but 2027 is likely to see an inflation resurgence
aka covid's 2020-21.
In-house indicators show no major changes, but the VIX call
indicator remains between a weak and strong Sell and low ETF P/Cs have resulted
in the hedge spread dropping to a weak Sell as well as the SPX and NDX ETF and
ETF P/C indicators.
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, INT view. Bearish sentiment dropped slightly but remains above a
weak Sell.
Update Alt EMA. Bearish sentiment remains slightly below neutral.
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, SMA only]. Weights
are 80%/20%.
Update. Bearish sentiment remains near neutral.
Update EMA. Bearish sentiment remains slightly above neutral.
The ST VIX calls and SPXADP indicator bearish sentiment fell to a strong Sell
but improved to near a weak Sell by 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 EMA. Bearish sentiment is little changed.
Update FOMO Calls. Bearish sentiment rose above a weak Sell from near a
strong Sell.
Bonds (TNX). Bearish sentiment remains at low extremes.
For the INT outlook, 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 a weak Buy as prices bounced back to
the 400s.
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 continues to fall, nearing a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment continues to move below a weak Sell, now
weaker than the Apr 2022 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 mildly
positive.
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 has moved to a 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 has moved to a weak Sell.
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 July 16. 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. Note multiply OI$ by 100 for shares/contract.
With Fri close at SPX 5660, options OI for Mon is moderate with a slight
negative bias to 5635.
Wed has small SPX OI where ITM calls show a negative bias to/below 5600.
For Fri AM strong SPX OI shows a positive bias but BE has dropped to 5675.
For Fri PM SPX has strong OI with a similar outlook to the AM OI.
For EOM May 30 strong SPX OI indicates a range of about 5600-5700.
IV. Technical / Other
This week I will take a look at a couple of external INT/LT indicators.
The first is the NAAIM active
manager exposure index which bottomed in mid-Apr at 35 similar to Mar 2022 and
jumped 20 pts each of the last two weeks and is now near the level of the Apr
2022 rally top at 81.
The second is the The second is the Rydex 3x ETF Bear/Bull ratio mentioned last week while still
at a Buy level, but dropped sharply during the week and has moved to a Sell.
Again the levels of sentiment are similar to the Mar-Apr 2022 period. And
don't forget the LT ES expanding
diagonal of Trader Joes shown early Apr which was looking for a low near
4800 and rally afterwards to around 5600 before a drop to the low 4000s late
2025.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
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) bearish
sentiment remains positive at 0.25 SD, NQ (NDX) bearish sentiment remains at a weak Sell at
-1.25 SD, YM (DJIA) is slightly positive at 0.15 SD.
Conclusions. Limited upside is likely for more than an intra-day
basis. Positive tariff deals are likely to cause temporary price spikes,
but it appears that it is now time to start "selling the rips". A major
deal with China (50% prop) may push prices to SPX 5850ish, but churning between
5550-5850 until late May is the optimistic outlook. Apr CPI comes out Tue
13th and may be helped by low oil prices.
Weekly Trade Alert. SPX options Oi indicates a potential range of
5600-5700, but positive news may cause a larger move higher. Updates @mrktsignals.
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