Last weeks no call turned out to be correct for the entire week with ST
indicators turning negative while INT indicators were showing strength.
The week did see significant volatility after a report from
MIT on Mon showing that 95% of the
GenAI projects were showing 0% ROI (no profits). As a result the NDX dropped 5%
by mid-week dragging the SPX down 2% and the DJIA 1%, surprising BTC was one of
the biggest losers, down 10%. THe unknown possible positives were the
Trump/Putin meeting on Ukraine which was a failure and Jackson Hole where
J.Powell appeared swayed enough by the recent jobs data to support lower int
rates. The latter reversed almost all the losses for the SPX, but only
half for the NDX with the DJIA making ATHs based on strength in the banks.
Overall sentiment is little changed as ST sentiment (ST Composite, VIX calls,
FOMO calls) is slightly less bearish while INT sentiment (hedge spread) is more
bearish. ST SPX prices should continue to see some occasional weakness but
not an INT top. SPX options OI show that 6400 or lower are likely by EOM
(inflation PCE report?).
One of the more interesting non-market reports for the week was from
M.Armstrong that China had
developed an AI robot that could carry a human fetus to term. What's next
a robot chicken that can lay eggs?
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 remains close to neutral.
Update Alt EMA. Bearish sentiment remains close to 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 continued to drop to just below neutral.
Update EMA. Bearish sentiment continued to drop to just below
neutral.
The ST VIX calls and SPXADP indicator bearish sentiment remains
just above a weak Sell.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (52%)
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 continues to fall, mid-way between a weak and
strong Sell.
Update FOMO-calls. Bearish sentiment fell slightly, mid-way between a weak
and 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 continues to climb while prices rise, indicating
higher prices are likely.
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 to slightly above a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment continued higher toward 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 fell below a weak
Buy with a decline in ETF and options sentiment.
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 at 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 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 Aug 29. 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 6467, options OI for Mon is moderate with moderate call
resistance starting at 6475, below 6450 and 6425-50 is a likely range.
Wed has somewhat smaller OI where SPX has stronger call resistance at 6450 and
a likely range is 6400-50.
For Fri EOM strong SPX OI has more ITM calls and a lower BE and stronger call
resistance at 6450 and esp 6500. A likely target is the straddle at 6400
or lower
IV. Technical / Other
Last weeks futures update were out of date.
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
positive at + .75 SD, NQ (NDX) is negative at -2.0 SD, YM (DJIA) is a neutral at .0 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. One thing that has not received a lot of press in the
US is a $340B stimulus package in China that has pushed stocks to decade highs,
up 20%+ since June. This may have given a temporary boost to US stocks as
well. Sometime in the next 6 to 8 weeks the legal status of the Trump
tariffs is likely to be decided by the trade court and the SCOTUS may be next,
but with uncertain results for financial markets. Watch for any strength
in the inflation and jobs numbers as this may affect the Fed's outlook.
Weekly Trade Alert. Some pullback in SPX to/below 6400 looks likely
by EOM/Fri based on setup in options OI. Updates @mrktsignals.
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