Last weeks outlook for more of the same rangebound market (SPX 6800-6900)
ended up being too conservative, but the drop to SPX 6720 seemed too much based
on slightly weaker than expected jobs report with the unemployment rate jumping to
4.5%. I had also warned of a rate hike by the BOJ which could effect the
yen carry trade and the decline was more likely a "Sell the rumor". The
hike occurred before the market open Fri but was considered a
"dovish hike" causing the yen to
fall 1%, supporting the yen carry trade; and as a result, markets rallied back
to the target closing range of SPX 6825-75 at 6834.
Overall, bearish sentiment improved slightly but remains below neutral,
however, the ST Composite did rise to a weak Buy. One disturbing external
indicator, the NAAIM investment managers exposure index, rose above 100% as of
Wed close. The last time the NAAIM index was over 100% was Oct 29, right
before a 3 week decline from SPX 6880 to 6520. Combined with this weeks
SPX options OI, the outlook is for several days of mildly positive action with a
more serious decline beginning the following week, possibly due to tax loss
selling, that last several weeks.
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 was mostly unchanged and remains
below neutral.
Update Alt EMA. Bearish sentiment surprisingly fell for the week closing
near a weak Sell VST (grn).
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 continued to rise, slightly above a weak Buy.
Update EMA. Bearish sentiment closed right at a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment remains near 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 from a weak Sell mid way to neutral.
Update FOMO calls. Bearish sentiment continued to rise 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 well above a strong Buy as gold retests
its ATH.
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 above a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment rose from a weak Sell halfway 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 continues to fall
toward 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 rose slightly 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 remains just above a weak Sell.
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 Dec 26 & EOM. 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 6834, options OI for Mon is moderate with little nearby
put support and call resistance over 6850. A 6800-50 close is likely.
Wed SPX options OI is similar to Mon, however, over 6850 could see positive
delta hedging toward 6900.
For Fri SPX options OI has more put support up to 6850 with call resistance at
6900.
Wed EOM Dec 31, SPX options OI has strong call resistance down to 6800, but ITM
puts may offer some support.
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 + .6 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. The year 2025 is ending much like 2024 for the SPX.
In 2024 a 3 month trading range stretched from Dec to Feb before the Trump
tariff scare and in 2025 we have seen a trading range since Oct. Both
years ended with WS bullish for the coming year and stretched bearish sentiment.
This years gains were concentrated in the Mag7 AI-related tech stocks and some
"reversion to the mean" is likely. The question is whether the laggards
play catch up as WS surmises or whether the tech leaders catch down. My
bet is on the latter.
Weekly Trade Alert. SPX options OI is showing the potential for a
move to 6850-6900 by Fri, but 6800 or lower by EOM. Updates @mrktsignals.
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