Last week filled the first of 3 lower gaps in the SPX at 7050 on Thur before
rallying to a new ATH Fri (+1%) on hopes of a fruitful resumption of the peace
talks with Iran while oil prices (WTI) rallied almost $10/bbl from $87 to $98
before closing Fri at $95. Tech EPS, especially semis were in the
spotlight pushing the NDX up 4%. News Sat AM indicates that the peace
talks have been called off and oil is up $2 with stock indices
IG-Weekend) down about 0.5%.
Last weeks price pattern followed an expanding diagonal or wedge with lower lows
for the week on Tue and Thur and higher highs on Wed and Fri. The
Tech/Other section takes a closer look at the LT NYSE Adv/Dec from 2017 and the
low Adv/Dec volume may result in a LT wedge forming. Potential sources of
LT problems are the over capacity of AI data centers
due to lack of available power mentioned and possible bond problems
(no J/S) warned about by former Treasury Sec
Hank Paulson a week ago as potentially bigger than the 2008
GFC. Combine this with an overly agressive POTUS and an unseasoned Fed
Chair (Warsh) and anything is possible.
Other gaps since the Apr lows are SPX 6900 (6888) possible in the next few
weeks and 6600-6750 not likely until summer. Overall current sentiment is somewhat
less extreme (FOMO) while the ST Composite remains mildly positive, the hedge
spread and SPX and NDX ETF and ETF option sentiment are at/near weak Sells.
The volatility during the week raised the VIX Call indicator above a weak Sell.
We are likely going to see a tug of war between EPS and oil prices. The
FOMC is unlikely to provide any surprises, but Kevin Warsh may become the next
Fed chair May 15 if the DOJ drops charges against Powell's $2B bill for a new
Fed building. Trump spends the same amount in 1 day blowing up Iran, go
figure.
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 remains neutral.
Update Alt EMA. Bearish sentiment improved, moving toward 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.
Update EMA. Bearish sentiment moved up from neutral toward a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment moved up from a weak
Sell.
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.
UpdateUpdate EMA. Bearish sentiment rose sharply from an extreme strong Sell
to between a weak and strong Sell as FOMO calls improved.
Update FOMO calls. Bearish sentiment rose to the strong Sell level.
Bonds (TNX). Bearish sentiment remains at extreme lows as TLT
volume is falling.
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 just above a weak Sell.
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 below a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment rose to just above a weak Sell with the
pickup in volatility last week.
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 remains 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 continued to drop below 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 continued to drop below neutraltoward 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
May 1. 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 7165, options OI for Mon is moderate with a BE at 8045 and
call resistance at 7130 and 7250. Put support is 6950 and lower. A drop
below 7130 is likely with 7100 possible.
Wed (FOMC) SPX OI is small with wide support/resistance zones from
6925 to 7250.
For Thur EOM strong SPX OI is highly negative where a large straddle at 7000 is
the likely target and possibly lower.
For Fri moderate SPX OI shows little put support and a BE at 7025. A drop
toward 7050 looks likely.
IV. Technical / Other
This week I wanted to take a closer look at the LT NYSE Adv/Dec volume chart,
This time using log prices for SPX. Weak Adv volume means that there is
weak support and as is seen in the LT time frame from 2017-21 the result was an
expanding diagonal or wedge which ended with the Covid epidemic. The
current MAs are still dropping even as the SPX makes new highs, but remain short
of the 2017 and 2018 lows.
This a closer look at the 2017 to 2021 period that indicates we may still
be about 6 mns from a top similar to early 2018.
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 + 0.4 SD, NQ (NDX) remains negative at -0.4
SD, YM (DJIA) is neutral at + 0.0 SD.
A quick look at gold (GC), bearish sentiment is in-between a weak and strong Sell at -1.5 SD.
Click dropdown list to select from the following options:
Tech / Other History
2026
2025
2024
2023
2022
Other Indicators
Conclusions. The Iran problem seems to be on hold, while early EPS
are providing a positive impact on patticular sectors (NDX). SPX options
OI are indicating potential problems later in the week, particularly Thur/Fri
with EOM options squaring and possible uncertainty in the ME.
Weekly Trade Alert. SPX options OI are indicating some downward
pressure toward SPX 7000-50 possible Thur/Fri. Updates @mrktsignals.
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