The overall outlook last week was for more of the rangebound
trading with a possible "Sell the news" after the FOMC expected rate cut spike
in SPX. The actual outcome was similar, but a Mon decline to SPX 6850 set
the stage for a limited spike to just over 6900 Wed and the decline was mostly
O/N with the late ORCL earnings showing weak profits, setting up a lower open at
6825 on Thur and a reversal back to 6900 with expected strong EPS from Broadcom
(AVGO). But Fri more negative AI news came out with leasing problems from
a Texas mega data center sending the NDX down 2% and the SPX to 6800 before a
6827 close. The whole AI data center saga is starting to remind me of
China's "ghost city" fiasco several years ago where developers were encouraged
to overbuild to bolster growth in GDP. With a President who is a former
R/E developer, can the same thing occur in the US? AI infrastructure
suppliers such as NVDA and AVGO continue to show strong profits, but users such
as ORCL and CRWV fail to show incremental profits.
The move from the Mag7 to cyclicals seems to going as expected as the DJIA
and RUT made new highs last week, while the NDX missed by about 1% and the SPX
by a few pts.. It's interesting that the public which mainly follows the DJIA is
piling into stocks at record levels much like early 2000. Overall bearish
sentiment for the week improved from a weak to strong Sell to a neutral to weak
Sell.
Next week is interesting because we finally start to get economic data
delayed due to the shutdown with the Nov jobs data on Tues and the CPI report on
Thur. The jobs data is expect to show continued weakness with about 50k
jobs added and a increase in the unempl rate to 4.5%. The CPI is expected
to remain the same as 3%/yr and 0.3%/mn. Several Fed heads will be
speaking with S. "Trump" Miran Mon AM. Also triple witch is Fri.
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 continued to decline below neutral.
Update Alt EMA. Bearish sentiment remains below 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 above neutral to near a weak Buy.
Update EMA. Bearish sentiment rose above neutral to near a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment rose
from a weak Sell to 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 near a strong Sell to a weak Sell.
Update FOMO-calls. Bearish sentiment rose from a strong Sell back toward
neutral, note the Feb top was neutral.
Bonds (TNX). Bearish sentiment remains at low extremes.
Rates dropped initally after the Fed cut but rose to unchanged by EOW, so much
for cutting rates to help housing.
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 increased sharply above a strong Buy with huge
DUST $ volume Thur.
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 weak Sell.
With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3
mns), bearish sentiment also 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 declined back 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 declined back to a weak Sell with a sharp decline in ETF
P/Cs.
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 to near a weak Sell with a reversal of the SDS/SSO
ratio and a sharp decline in ETF P/Cs.
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 19. 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 6827, options OI for Mon is moderate with put support at
6800 and call resistance at 6900 and slight bullish bias with a 6840 $OI B/E.
Wed has smaller SPX OI with a slight negative bias from a 6825 B/E and same
support/resistance .
For Fri AM strong SPX OI shows a lower B/E at 6785 but the huge straddle at 7K
will likely limit downside.
For Fri PM moderate/strong SPX OI shows a more positive bias with a relative
large straddle at 6850. Bias M/W/F is a tight range around 6825-75.
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 + .5 SD, NQ
(NDX) remains ar a strong Sell near -2.25 SD, YM (DJIA) increased toward 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. More of the move from big tech to the cyclicals is
expected thru the EOY with a mostly rangebound SPX. SPX options OI is
indicating a range from about 6800 to 6900 with closes likely in the 6825-75
area. Surprises in the jobs data or CPI may extend the range either way.
Several months ago I indicated that Q4 jobs would likely be skewed to the
downside due to the summer gov't jobs layoffs who were still paid for 90 days
and are not officially "unemployed" while being paid. A reversal in the
jobs outlook in early 2026 could reverse the Feds dovish outllook.
Weekly Trade Alert. Could be a boring week with SPX rangebound from
6800-6900 and closes in the middle of the range. Updates @mrktsignals.
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