Last weeks extreme low hedge spread sentiment was warning of an increase in
volatility, and Mon/Tue were much as expected within the range of SPX 5875-900
lows and 6000 highs. However, Wed passage of the Trump "Big, Beautiful
Bill" upset the bond market with an expected $4-5T deficit over the next 10
years with the TNX spiking to 4.6% and the 30 yr bond over 5% for the 1st time in 20
years. The SPX reacted in kind with prices quickly dropping to 5825 before
a late rebound. Then Fri before the open Trump showed he has not given up
on tariffs just yet, threatening 25% tariffs on iPhones made overseas and 50% on
EU imports and the SPX fell to 5770 before rebounding to 5800.
Sentiment did improve last week with the ST Composite improving to a weak
Buy, the VIX call indicator improved from a weak Sell to neutral, and the hedge
spread from a strong Sell to between neutral and a weak Sell. The Bradley
turn appears to be late as next weeks SPX options OI is indicating a positive
outlook with SPX 5900+ possible. As last week showed the 90 day tariff
pause may only be temporary and July fireworks may be in store. This
actually fits into the 2015 "avian
flu panic" which saw a sharp reversal for a couple of months, a consolidation,
then lower lows. This would probably correspond to the TNX rising to
4.8-5.0% with the IHS discussed in the bond sentiment, and if so, the ideal SPX
target would be 4200-4400.
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 saw a slight uptick off the weak
Sell.
Update Alt EMA. Bearish sentiment saw a slight uptick above a weak Sell.
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 saw a sharp jump from neutral to a weak Buy.
Update EMA. Bearish sentiment saw a sharp jump from neutral to a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment moved above neutral.
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 moved up sharply from a strong Sell to a weak
Sell.
Update FOMO Calls. Bearish sentiment moved up sharply from a weak Sell toward
neutral.
Bonds (TNX). Bearish sentiment saw an uptick with increased
buying of TBT with apparent concern over federal budget. THe TNX
appears to be follwing an IHS with a possible pullback to 4.4% before a run
to 4.8%.
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 fell sharply toward neutral as prices bounced back
from a 10% correction.
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 to slightly above a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment rose sharply now over the weak Sell
level.
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 is little changed
above the neutral level.
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 little changed below 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 remains near 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 May 30. 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 5803, options OI for Tue (Mon M-Day) is moderate with a
strong upward bias to the 5850-5900 range.
Wed SPX has small OI where SPX has strong put support at 5800 and some negative
call bias at 5575. Prices can move higher as long as 5800-30 is held.
For Fri EOM strong SPX OI shows a strong positive bias due to puts at 5900 and
5925 and a move to 5900 or higher is likely.
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) bearish
sentiment remains positive at 0.35 SD, NQ (NDX) bearish sentiment
improved to neutral at
-0.50 SD, YM (DJIA) is slightly negative at -0.25 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. As I warned last week the vagarities of a POTUS who
seems to change policies from week to week will continue to roil the markets,
such as the possible 25% tariff on iPhones and 50% on EU imports. D.
Rosenburg has an interesting take on why tariffs won't work for the US at
Mauldin Economics this week.
The SPX held at its 200DMA at 5700, but I would not be surprised to see a gap
fill just below 5700. Otherwise a trading range which many will consider a
4th wave before retest of ATHs is likely and could be a flat as Oct-Nov 2018 or
a "bear trap" (down TL) as in Nov-Dec 2015, however, both ended with new lows
and a so called failed 5th wave. If May ends positive, some strength is
likely thru EOQ to show a positive quarter.
Weekly Trade Alert. The ST Composite is at a weak Buy with an improved
Hedge spread and the SPX OI is indicating SPX 5900+ is likely by EOM. Updates @mrktsignals.
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