Last week was expected to see a reflex rally to about the SPX 6350 level due
to options OI (close price) from the 6240 level and the 6350 level was reached
Wed. Thur open popped to a high of SPX 6390 at the open then fell
throughout the day to close at 6340, but Fri again opened strong on what seemed
to be no news, but was later seen as a result of leaked news of a Trump/Putin
meeting in Alaska to discuss a Russia/Ukraine war resolution and a delay of
additional sanctions/tariffs related to Russia. Russia's position has only
gotten stronger with a slow and steady ground advance, so they are unlikely to
accept less than keeping all land gains and "no NATO" for Ukraine. The EU
and esp UK see this as similar to the early stages of Hitler's land grabs in the
late 1930's where appeasement only led to WW2, and are still likely to object.
The Bradley turn date of Aug 13 and the Trump/Putin meeting support some type
of top next week, but INT/LT sentiment still is not showing the capitulation by
the bears seen at other INT tops over the last several years, so the top is
expected to be ST only. SPX options OI is showing the potential for a move
to the SPX 6350-80 area next week.
Overall, sentiment measures are a mixed bag with ST indicators remaining
slightly positive, while INT/LT indicators are modestly negative. From a
macro perspective, what is seen as ST weakness in the jobs market due to Trumps
policies may prompt the Fed to cut rates, while INT/LT increases in inflation
due to tariffs and trade disruptions could force the Fed to raise rates in 2026,
similar to late 2022.
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 to slightly below neutral.
Update Alt EMA. Bearish sentiment dropped to 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 continued to rise early in the week before falling
Thur/Fri.
Update EMA. Bearish sentiment declined from near a strong Buy to just below
a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment remains above
neutral.
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 reversed below neutral half way to a weak Sell.
Update FOMO calls. Bearish sentiment moved just below neutral.
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 drop toward a weak Sell. In
retrospect, the strong Buy from late 2024 was a precursor to the current rally.
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 dropped back to a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment reversed back below 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 is little changed
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 moved 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 fell back below 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 15. 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 6389, options OI for Mon is moderate/strong and shows
little put support until 6225 and strong call resistance at 6400 and 6475.
Momentum may keep prices near SPX 6400.
Wed SPX has smaller OI where strong call resistance moves up to 6475.
For Fri AM stronger call resistance should keep prices below SPX 6400.
For Fri PM strong SPX call resistance moves up to 6450 with strong put support
at 6200.
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 below a weak Buy at < 1.0 SD, NQ (NDX) bearish sentiment
is near a strong Sell at
< -1.75 SD, YM (DJIA) is at neutral at 0.0 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. Strength in the Mag7 tech stocks continue to power
value-weighted indices such as the SPX and NDX higher, while the broader market
falters as measured by the NYSE AD Line
that is now comparable to the period before the 2024 July and Dec declines.
Eventually this will become a bigger problem, but it doesn't appear to be
anytime soon by most sentiment indicators.
Weekly Trade Alert. The Aug 13 Bradley turn date of Aug 13 may
indicate a ST top, possibly SPX 6450-80, with a downturn not likely to exceed
SPX 6150. Updates @mrktsignals.
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