Last week was expected to be mildly positive due to the ST Composite moving
to a weak Buy and most other indicators near neutral, and SPX prices
exceeded expectations (6850-6900) with a push to new ATHs, closing at 6930.
Fri moved to SPX 6945 for about 5 min at the open and 6950-7000 is the target
for some EW analysts. Although volume was low all week, the relative
volume for the SPX 2X ETFs (SDS/SSO) was sharply lower, moving several SPX
options and ETF indicators to a weak Sell. The DM/SM indicator also spiked
lower to the lowest level since the Jan 2022 SPX peak. Other ST indicators
are near or below neutral so an INT top is likely near.
Last weeks top showed even more divergences. Mid-Dec options exp showed
a divergence with the DJIA making an new ATH with the SPX short by about 1% and
the NDX by 3%. Last Fri ATH by the SPX showed the DJIA lagging and the NDX
even lower than mid Dec. Comparison to the tech bust of 2000-02 shows that
a rolling top of several months is possible. SPX options OI indicates some
weakness next week is probable with a target of 6850-75.
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 to a weak Sell as SDS to SSO
volume continues to fall sharply after the Nov reverse split spike.
Update Alt EMA. Bearish sentiment fell to 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 fell from a weak Buy to neutral.
Update EMA. Bearish sentiment spiked lower mid-week to a weak Sell VST (grn)
then rebounded on Fri.
The ST VIX calls and SPXADP indicator bearish sentiment fell 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 fell from above a weak Sell to a weak Sell LT
(blu) and strong Sell VST (grn).
Update EMA. Bearish sentiment dropped from neutral to just above 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 remains at a strong Buy. As discussed in
Tech/Other, US fundamentals (inflation, int rates) do not support current gold
prices, but China may be the cause with
inflation at two year highs.
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 sharply from above a weak Sell to a weak
Sell LT and strong Sell VST (grn).
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment remains little changed 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 fell from above
neutral to near a weak Sell.
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 fell below a weak Sell with the continued decline
in 2X ETF sentiment.
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 Jan 2, 2026. 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 6930, SPX 6930 is a pivot were above could see positive
delta hedging toward 6950, but below could drop to 6875-900.
SPX options OI for Wed EOM is large and shows a strong bias downward if below
the 6900 pivot where put support is 6840 and BE is 6835, but 7k puts give some
support. SPX 6850-6900 is likely.
SPX options OI for Fri is moderate with call resistance at 6925 and little put
support until 6850. BE at 6875 looks likely.
IV. Technical / Other
Several years ago I noted that their seemed to be a fairly strong correlation
between China's stock market (SSEC) and the price of gold. Its interesting
to note that in late 2018 both were about 2400 and about a month ago the SSEC
hit 4350 with gold lagging and now gold is 4500. The idea is that the
Chinese populace has been speculating in gold for thousands of years and
are a big driver of gold prices. Both are likely driven by China's
stimulus programs.
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 + .5 SD, NQ
(NDX) remains at a strong Sell near -2.15 SD, YM (DJIA) remains near a weak
Buy at +.75 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. Santa took a break and did not completely forget
Christmas, but may have a hang over going into next week. Last weeks NVDA
$20B acquisition of Groq via licensing and poaching its leaders to gain access
to Google's TPU chip models only received a yawn from WS, indicating more
evidence of AI tech topping.
Weekly Trade Alert. Some pullback is likely by EOW with SPX options
OI pointing toward the 6875 level. Updates @mrktsignals.
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