Last week was a major surprise due to the extreme weakness prior to the after
hours Wed EPS for NVDA. I had been warning about potential problems with
the AI business model (low profitability, high energy usage) for months, but
last week seemed to be the "gotcha" moment.
PhilStockWorld seemed to have the
best summary on Mon with the focus on CoreWeave (CRWV) as a cloud computing
platform that leases high-performance GPUs for AI. The last six weeks
while BTC has fallen 33%, CRWV has fallen 50%, and CRWV appears to be the canary
in the coal mine. NVDA EPS did produce a sharp rally and reversal only
from levels about 150 SPX pts lower than expected (6650 to 6770 then down).
Sentiment remains asleep at the wheel, as only the ST Composite and DM/SM
indicator moved to a weak Buy on last weeks pullback. Futures (COT) did
show some changes with NQ moving to a strong Sell, but YM turning positive.
The result be a mostly a sideways market thru the EOY unless SCOTUS reaches a
decision on Trumps tariffs. BTC and CRWV are the canaries to watch for
further tech weakness. BTC is near TL support going back to early 2024.
News from China shows the
potential for solving future energy problems with a working thorium molten salt
reactor. Thorium is a byproduct of rare earth extraction and China and
India have the largest known reserves with enough for about 1000 years of energy
for China. Oddly, the process was first investigated by the US, then
abandoned when it could not be weaponized.
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 rose, but remains short of a weak
Buy.
Update Alt EMA. Bearish sentiment remains just over 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 rose back above a weak Buy.
Update EMA. Bearish sentiment rose sharply into Wed to near a strong Buy
then fell back to a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment rose from neutral to 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 remains below neutral.
Update FOMO calls. Bearish sentiment remains near 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 strong Buy after a 10% correction.
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 sharply to a weak buy and continues to mirror
other retail sentiment measures such as the CNN Fear & Greed Index which fell to
a 9 just above the April lows.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment rose from below neutral to 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 after the
weak Buy did not pan out.
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 rose slightly to neutral.
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 slightly.
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 Nov 28. 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 6603, options OI for Mon is moderate where a move over
6610 should go to 6650 and below 6610 negative delta hedging can push toward
6550.
Wed has smaller SPX OI with little call resistance until 6750.
For Fri strong SPX OI and put support up to 6700 should push prices up to
6700-50.
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 less
positive at + .5 SD, NQ (NDX) is more negative at -2.0 SD, YM (DJIA) is a
positive at +.5 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. The tech bubble may be bursting, but a stock market
collapse may not be imminent just yet. The good news Fri was the Fed Pres
Williams indicated that would support lower int rates if the labor market
continues to weaken. The bad news is that a similar situation occurred in
2000 when the tech bubble burst at the same time as the end of a Fed tightening
cycle, the result was continued strength in the cyclicals (DJIA,RUT) even as
techs continued to falter and that masked the decline for almost a year.
Today this could mean a H&S pattern for the SPX with the bottom of the right H
near 6550 and only a partial recovery, this can be best seen in BTC with the
lower left H at 78k in Apr.
Weekly Trade Alert. Options OI for SPX is indicating a partial
recovery to 6700-50 by EOW. Updates @mrktsignals.
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