Although SPX prices were expected to rise Mon-Wed of last week due to the
options OI, but the extent of the rally was totally surprising, rising 200 pts from
the 5970 level to close at 6173 for the week. The first half of the rally
thru Wed can be explained by the apparent success of the US "monster" bomb
against the defenseless Iranian nuclear sites and their limited response, but
the run to new ATHs seemed to be based on pure momenturm and positive delta
hedging or simply belief in the Trump mantra. NYSE Adv/Dec volume
continues to be very strong and early in the week pushed the ST Composite to a
strong Buy, and by the EOW it remained near a weak Buy.
Overall sentiment is somewhat mixed with the ST Composite remaining at a weak
Buy, while the hedge spread shows a sharp drop beyond a weak Sell. Prices
may rise, but an increase in volatility is likely
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 improved silghtly, moving back
toward neutral.
Update Alt EMA. Bearish sentiment improved silghtly, moving back toward
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 rose sharply above the weak Buy due to strong
NYUPV/NYDNV.
Update EMA. Bearish sentiment rose to a strong Buy early then fell back to a
weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment fell below 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 fell sharply to below a weak Sell as hedging
saw a sharp drop.
Update FOMO Calls. Bearish sentiment improved as call volume fell relative
to high SPX volume.
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 improved toward neutral as the pullback in HUI
continued.
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 slightly.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment fell sharply from just above a weak Sell
to half way to a strong Sell.
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 rose back to just
above 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 almost back 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 rose above 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 7 due to the July 4th holiday. 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 6173, options OI for Mon is large where some downward
pressure is possible, but 1/3 of $ call value is at 5900 and over 6150 positive
delta hedging is possible.
Wed has very small SPX OI and a near term range of about 6125-75 looks likely.
For Mon 7th very small OI shows support/resistance in the 6100-50 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) bearish
sentiment is slightly positive at 0.5 SD, NQ (NDX) bearish sentiment
jumped over weak Sell at
-1.25 SD, YM (DJIA) remains near a weak Sell at -0.5 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. Stock prices were likely buoyed by a two-day reversal
in oil prices that wiped out two weeks of gains and improved the ST inflation
outlook. Most will be waiting to see if the Fed cuts int rates at the end
of July, while we are nearing the point where Trumps tariffs should begin
to increase prices. Continued low inflation and rate cuts could push the SPX
higher to the 6300-6500 level.
Weekly Trade Alert. More volatility, but an SPX range 6100-6200 is
possible. Updates @mrktsignals.
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