Last week was expected to be modestly positive for the SPX (6675-35) early
in the week with a selloff to 6650 by end of week. I also wondered about
the significance of the Oct 7 Bradley turn date unless there was an unexpected
"news event". Prices were actually stronger than expected thru Wed
(6700-50+) and by Fri AM were as high as SPX 6760+ until Trump decided to
tweet that the China 100% extra
tariff pause was off (expt on thru mid-Nov) at 10 AM EST. The SPX proceeded
to drop over 200 pts into the close. I had previously warned that
sentiment was not as extreme as early 2025 and that risk would probably be a
news event such as the SCOTUS ruling on tariffs or the China trade agreement
expt by mid-Nov and we are now back to tweets from POTUS.
INT sentiment remains mixed, with the LT Dumb Money indicator almost to a
strong Sell, while the ST Composite has risen to a weak Buy. However,
Trumps trade war part 2 creates extreme uncertainty. I would not be
surprised to see a drop to as low as SPX 6400 (-5%) early in the week with a
recovery to 6600+ by EOW (SPX options OI). The
2018 analog (Trumps 1st trade war
with China), showed a 10% drop in Oct and a 2nd 10% in Dec and that would be about
SPX 5300. Apr-June could even see lower prices, depending on how the bond
market reacts to a new Fed chairman.
Discuss.
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 is little changed, stuck between
neutral and a weak Sell.
Update Alt EMA. Bearish sentiment is little changed, stuck between neutral
and a weak Sell.
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 to a weak Buy.
Update EMA. Bearish sentiment spiked higher on Fri with large UVXY vol, now
near a strong Buy VST (grn).
The ST VIX calls and SPXADP indicator bearish sentiment moved above neutral,
but well short of a weak Buy.
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 (ST) reversed sharply from below to above a
weak Sell with LT (blue) at a weak Sell.
Update FOMO calls. Bearish sentiment moved up 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 rose above a weak Sell as prices dropped slightly.
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 remains near a strong Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment moved up from 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 is little changed
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 remains 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 remains 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 Oct 17. A text overlay is used for extreme OI to improve readability,
P/C is not changed. Also, this week includes a look at GDX, TLT & IBIT for Mar exp.
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 6553, options OI for Mon is moderate and shows a high BE
due to lack of calls. SPX 6550 is an impt pivot since the next significant
support is 6375.
Wed has smaller OI where SPX has little put support until 6325 while below
6600..
For Fri AM strong SPX OI is mixed with a negative $P/C but positive P/C with BE
at 6600. Probable expiration 6550-6600.
For Fri PM moderate SPX OI indicates a move to 6600+ is possible.
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 is
positive at + .75 SD, NQ (NDX) remains at a weak Sell at -1.5 SD, YM (DJIA)
remains neutral 0.0 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. Since May, Trump has given China two 90-day delays on
the so-called reciprocal tariffs (100%) that was due to expire Nov 15. It
seems unusual that Trump would make such an "about face" unless he is trying to
pressure China into a commitment before the SCOTUS ruling by mid-Nov, where he
may lose his leverage. But China is in a strong position to call his bluff
since they control much of the raw materials (rare earth elements) needed to
support Trumps "technology renaissance" in the US. This, plus the recent
finding that global tech suppliers such as ASML and TSMC have sold 30% or more
of their inventroy to China in spite of restrictions placed by Trump makes me
wonder who is really "holding the cards".
Weekly Trade Alert. Further downside looks likely, possibly to
around SPX 6400 before a sustained bounce back to 6650-6600+ by EOW. Updates @mrktsignals.
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