Stock Markets Take a Holiday

Last weeks weakness caught me off guard and appeared to be due to a combination of the Jewish holiday seasonality ("sell on Rosh Hashanah/Sept 22, buy on Yom Kippur/Oct 1") and a slew of economic data supporting a stronger economy and fewer rate cuts by the Fed, including higher GDP and lower jobless claims.  However, the PCE was somewhat weaker than expected and calmed inflation fears, and the ending loss for the week was only 20 pts for the SPX to 6644 after a Thur low of 6570 or about 2% down from the 6700 high.  No guidance was given, but the lows were similar to support levels for the SPX options OI.

The Tech/Other section this week looks at two of my favorite INT/LT indicators, the LT NYSE Adv/Dec volume chart that has caught the top and bottoms of the last three INT declines since the 2020 covid downturn and the Rydex 3x Bear/Bull ratio.  Last week the volume chart just missed an official Sell of 1.5 at 1.51.  The average lead time for the NYSE volume indicator before an INT downturn has been 4-6 weeks, and with the next FOMC rate cut expected on Oct 29 and NVDAs next EPS mid-Nov, these could be critical dates.  SCOTUS tariff rulings and the Nov 15 China trade deal deadline are also important.

Sentiment overall improved slightly with the ST Composite moving to a weak Buy.

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 moved close to neutral mid-week, but pulled back with the late rally.

Update Alt EMA. Bearish sentiment moved close to neutral mid-week, but pulled back with the late rally.

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 went over the weak Buy level mid-week before closing just below a weak Buy.

Update EMA. Bearish sentiment went over the weak Buy level mid-week before closing just below a weak Buy.

The ST VIX calls and SPXADP indicator bearish sentiment moved toward a weak Buy mid-week then fell back toward 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 rose then fell back to a weak Sell.

Update FOMO calls. Bearish sentiment rose to 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 remains at a weak Sell as prices rose 4% 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 continues to slowly decline.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment improved but remains near 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 remains near 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 continued to rise above 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 to 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 Oct 3. 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 6644, options OI for Mon is moderate with strong put support at 6550 and strong call resisstance around 6740.  Probable range is SPX 6600-75

For Tue/EOM Sept 30 strong OI has a low BE at SPX 6510 due to the huge call OI at 6500, but put support should limit downsude to 6575-600. Call resistance starts at 6650.

Wed (buy Yom Kappur) has somewhat larger OI where SPX has a large straddle at 6700.
I really don't follow seasonality, so expt range is 6625-75.

For Fri (jobs report) moderate SPX OI has much stronger put support and a much larger straddle at 6700.  With put support up to 6650, a test or best of the 6700 area looks likely.

For Fri Oct 17 AM strong SPX OI shows strong call resistance at 6700 and above that will likely limit rallies.

IV. Technical / Other

My two favorite INT/LT charts are the LT NYSE Adv/Dec volume chart of the 100 and 200 day EMAs and the Rydex 3X Bear/Bull ratio.   The last time I looked at the NYSE Adv/Dec chart was in April and concluded that the rally would continue to reach at least the 90% retrace level (SPX 6000) on strong ADV volume, but recently strong DEC volume has sent the ratio back to the Sell level at 1.5 (Wed 1.51).  You can see that each of the three INT tops since 2020 (Feb 2020, Jan 2022, and Feb 2025) saw a decline to 1.5 4-6 weeks before the INT top, but smaller pullbacks were seen in the summers of 2023 and 2024. 

Here we are at similar lows to the early 2022 and 2025 SPX tops, .

Given the recent hysteria about the weakness in the current jobs outlook, I found this chart of the unemployment rate back to 1950 interesting.  In 2023 we hit the lows of 1969, and look at what happened in the 1970s with the pro growth (low int rates) policy of the inflationary 1970s, but I guess with MAGA, "this time is different". Source.

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) remains at a weak Sell at -1.5 SD, YM (DJIA) moved to a neutral 0.0 SD.

Click dropdown list to select from the following options:

Tech / Other History
2025
   05.09 NAAIM LT and Rydex 3x Bull/Bear indicators approaching bulish extremes.    05.02 The strong breath Adv/Dec volume may not be all positive, aka late 2015.    04.19 An SPX 2022 bear market analog and an update of the LT NAAIM Index.    04.12 How golbalism has effected foreign purchases of US debt since 1980.    04.05 A comparison to SPX 2020 covid crash and a look at LT NAAIM Index.    03.29 Corporate profits to GDP since 1980 show strong growth from globalism.    03.22 A comparison to Trump 1.0 trade war results for the SPX.    03.15 Update of Technical Indicator Composite & SKEW plus VIX term structure.    01.25 Update of NYSE Adv/Dec volume now at Sell level & SKEW shows warning of INT top (1-3mns).
2024
   12.15 Comparison of NYSE Adv/Dec volume lows to peaks in SKEW shows ST (1 month) warning of INT tops.    12.06 High peaks in SKEW since 2018 have been early warning of INT tops as sign of "max" options bearishness.    09.07 A look at DJIA/SPX analog from the 2000 market top shows possible strength into year-end.    05.25 A possible rounded top aka May 2015, Initial Claims lead Unempl Rate, LT NYADV/Dec warning.    02.17 A potential analog to early 2007 with early Spring and Summer pullbacks before Fall rally.    01.13 A look at LT SPX P&C, very high volume may compress range to 4650-4850 for mns, current Sell.
2023
   12.23 A quick update to the DJIA infl adj comparison presented as a possible analog Dec 2022    12.08 A look at the Feds recession indicator based on the unemployment rate using the Sahm Rule    10.21 A comparison of 5 year periods (1960s, 90s & today) for inflation and int rates (Fed funds & TNX)    09.29 A ST trend for TNX, INT/LT COT bearish for bond futures (TN), LT 20/30 yld curve    09.22 A look at Dow Theory and a DJIA diagonal and possible similarities to late 2015    09.15 Use of Brave browser Shield for enhanced internet access to some sites    07.22 A closer look at the 1966-74 markets indicate marginal new ATHs likely around 2024 Pres election    07.08 TNX since 2020 shows bounce likely temp w/ more back&fill before rounded bottom completes    07.01 Sentiment for BKX is at warning levels, Barcharts ES sentiment is now neutral.    06.24 Another update to VIX call indicator using VIX P/C; how volatility (VIX) effects options pricing    06.17 OTDE Volume & Put/Call Ratio Drilldown - low volatility (VIX) ahead    06.10 Volatility indicators warning of a nearing top    05.20 A review of indicators that performed well in 2015s rounded top    05.13 Comparing the VIX term structure (VIX/VXV) and volatility ratio (VIX/VVIX)    05.06 A review of the current int rates (TNX), unemployment and CPI compared to the 1960s    04.29 Addressing the negative M2 growth misconception, adding Barcharts ES outlook    04.15 Several LT/INT indicators show INT gains likely (SKEW&VIX/VXV,VIX/VVIX,BPSPX&SPXADP)    03.25 Comparison of PCE inflation and TNX rates to late 1990s indicates possible tech meltup    03.18 Strong SPX volume at Mar optn exp supports Spring rally of 10%+    03.11 Low SPX P/C ratio indicates likely trading range    03.04 LT T-bonds (10/20yr) => more Fed tightening, LT NYSE Adv/Dec volume => possible ATH retest    01.28 SPX correlation w/liquidity, Fed bal sheet - Treasury Gen Acct - O/N reverse repo    01.14 Volatility indicators, ST VIX calls indicate pullback SPX 200 pts, INT/LT SKEW & VIX/VXV still bullish    01.07 Gold performance relative to int rates (TNX), and China stock market (SSEC)
2022
   12.24 Late 1960s analog, TNX,Unempl & CPI => Recession 2024-25, DJIA top Feb'66 retest late '69    12.17 A contrarian view to the consensus 2022H2 recession & bear narket low of SPX 3000    12.10 Yield curve inversion (since 1980) not perfect recess indicator compared to inflationary 1960-80    11.26 Sentiment indicators showing a sharp drop late Dec as a setup for a strong Spring rally    11.19 Sentiment indicators showing choppy move higher likely before pullback    11.05 Using the SPXADP with the VIX call only indicator improves effectiveness

Other Indicators
   U.S. 10 Year Treasury Note (TNX Rate), Futures, Extended Hours    ES (S&P 500), Futures, Extended Hours +    NDX (NASDAQ 100), Futures, Extended Hours    Marketwatch Economic Release Calendar    INT/LT Rydex 3x Bear/Bull Fund Ratio    INT/LT NYSE Up/Down Volume 100 & 200 DMAs    S&P 500 Historical Charts with Inflation Adjustment    DJIA 100 Year Historical Charts with Inflation Adjustment

Conclusions.  Next weeks unemployment data should give an important clue to how far the Fed is willing to go to "juice" the economy.  As pointed out in the Tech/Other section, it not simply a tradeoff between inflation and jobs, as the 1970's pro-growth policy under "law and order" Nixon not only created an inflation spiral, it also created a higher unemployment spiral.  There are still no strong Sell signals in the INT/LT indicators, so there could be a delay for an INT top into the late Oct-Nov time period as shown in Tech/Other.

Weekly Trade Alert.  Early in the week gains look to be limited, perhaps a 6600-50+ range, but SPX OI shows potential for 6700+ by EOW.  Updates @mrktsignals.

Investment Diary,  Indicator Primer, Tech/Other Refs,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021,
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

Article Index 2019 by Topic, completed thru EOY 2020.02.04
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic

Long term forecasts

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