The last two weeks have shown a change in market behavior starting with the
sharp rally over SPX 6500 prior to the NVDA EPS release that was followed by a
sharp pullback after a mild disappointment and again last Thur/Fri when another
sharp rally prior to to the Fri jobs report was again followed by a sharp
pullback even after a slightly better (for lower rates) report. This is a
clear sign of FOMO by dumb money while smart money is using the rally to sell,
or distribution. Last weeks call for early strength followed by late
weakness was delayed by a pending debt crisis Mon that started in the UK and
caused a sharp opening decline in the US of about SPX 1.5% before the Thur
strength and Fri weakness. This may be a preview of the outcome of several
of Trumps policies that seem to be oriented to the dismantling of the regulation
of financial markets and banking, including the Fed.
Otherwise, overall sentiment is little changed and is likely to lead to a
continued topping pattern with outcome of the Supreme Court ruling on Trumps
tariffs a possible source of volatility in Oct. Notable changes in
sentiment are a decline in bearish outlook for SPX options and NDX futures.
PPI//CPI on Wed/Thur may prove a positive catalyst due to continuing low oil
prices (down 13% YTD) offsetting other price increases. I wonder if Trump
made a side deal with the Saudis to encourage their production increases.
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 fell mdi-week then rebounded to end
slightly lower.
Update Alt EMA. Bearish sentiment fell mdi-week then rebounded to end
slightly lower.
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 rebounded somewhat, but remains near neutral.
Update EMA. Bearish sentiment continued to rise above neutral.
The ST VIX calls and SPXADP indicator bearish sentiment declined slightly
below 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 declined slightly and remains below a weak
Sell.
Update FOMO calls. Bearish sentiment continued to decline below a weak 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 fell to a weak Sell as the HUI appears to be in a
blow-off stage with a 4% rise for the week.
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 but remains at a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment is little changed and remains just above
a weak 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 continues to fall,
lead by a sharp drop in SPX options sentiment similar to Jan, with the composite
now 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 remains little changed near 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 continues to decline.
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 12. 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 6482, options OI for Mon is moderate with call resistance
from 6475 and above and put support startig at 6450 and strong at 6400.
Likely range 6450/lower to 6475. Over 6475 could see delta hedging.
Wed has smaller SPX OI where a large call position at 6475 is likely to stop
rallies, but there is little downside/put support.
For Fri moderate SPX OI shows call resistance moving up to 6500 and a slightly
higher could mean a late week recovery from early weakness, but there is also
little put support.
For Fri 19 mn AM exp, shows strong SPX OI that is mostly straddled below 6500.
ITM calls lower BE to 6375, but 6400-50 looks more 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) sentiment remains
positive at + .75 SD, NQ (NDX) dropped sharply from strong to weak Sell at -1.25 SD, YM (DJIA) is a neutral at 0.25 SD
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. Although not receiving much press, the Trump agenda
has had some notable setbacks over the last several weeks. The most
notable was probably the peace summit with Russia where Trump is eager to secure
access to the rare earth elements in Ukraine/Russia. Others include India
which was hit with a 50% tariff for buying oil from Russia and instead they
doubled their purchase of Russian oil and cutback on US purchases and now we are
on the verge of attacking Venezuela to effect a regime change to access their
huge proven oil reserves. It may or may not be a sign, but I am beginning
to wonder about the outcome of the SCOTUS tariff ruling that could roil market
according to
one analyst
(close overlay).
Weekly Trade Alert. Sentiment and SPX OI are similar to last week
and indicate early weakness and late recovery. With PPI//CPI on Wed/Thur,
they may provide a catalyst either way. Updates @mrktsignals.
