Is It Time for a Sell in May?

As warned last week, some analyst were looking for SPX 7500-600 and the SPX rallied from 7400 to 7517 Mon-Thur even as oil rallied back to $100/bbl (WTI) after Iran talks faltered.  Almost half of the rally was due to a 10% rally in NVDA (8% of SPX) after Trump added its CEO to the China entourage and much of the rest was AAPL and MSFT which all together make almost 20% of the SPX.  Disappointment over China's reluctance to intervene with Iran did lead to a late in the week selloff for the monthly options exp which gave up most of the weekly gains.  May 14 was a Bradley turn date so a multi-day pullback is likely and the SPX options OI is indicating that the mid-low 7200s may be a target for the EOM.  Musk announced the SpaceX IPO (SPCX) with be thru NASDAQ in June which may provide a final push to NDX 30k before a  larger summer pullback.

The bigger news may be that the global bond market is becoming worried about rising inflation as higher oil prices work thru the economies.  Both CPI and PPI in the US are back to levels not seen since 2022 and last week the TNX rose from 4.4 to 4.6% with a Fri gap over the important 4.5% level.  The CME FedWatch is now showing a 99% chance of no rate cut in June, a 20% chance of a hike in Sept, and a 50% chance of a hike in Dec.  Much may depend on whether Trumps blockade of the Strait of Hormuz succeeds in getting Iran to make a deal, but a lot of damage has already been done.

INT/LT bearish sentiment saw a large drop thru Thur. especially in hte ETF Put/Call measures such as the hedge spread and SPX & NDX ETF and ETF Put & Call indicators.  Each of the above reached a strong Sell VST indicating a multi-day pullback is likely.  The DM/SM also reached the strong Sell VST and is starting to look a lot like the late 2022 sentiment.

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 sharply to between a weak and strong Sell based on very low ETF P/C.

Update Alt EMA. Bearish sentiment fell sharply thru Thur to a strong Sell VST (grn) before reversing Fri 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 is well above a weak Buy based on weak up vol & strong down vol.

Update EMA. Bearish sentiment remains over a weak Buy.

The ST VIX calls and SPXADP indicator bearish sentiment remains slightly above 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 continued to fall based on the FOMO calls and ETC P/Cs and is now LT (blu) at levels seen at the early 2022 and 2025 tops.

Update FOMO calls. Bearish sentiment remains at the weak Sell level.

Bonds (TNX).  Bearish sentiment remains at low extremes as global int rates rose sharply Fri with oil (WTI/bbl) up over 10% for the week as the Iran bottleneck continued and China showed little interest in intervening.  On Fri, TNX jumped from 4.46 to 4.6%, breaking out over the 4.5% level.

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 from higher int rates and the US $ overshadowed higher Inflation as sentiment remains near a weak Sell.  If the prior three year cycle prevails, the 68% retracement of the last major move up targets about the 500 level.

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 continued to fall for the week and is starting to look like the late 2021 setup.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment fell sharply with the LT (blu) sentiment matching the Jan 2025 top and VST (grn) matching the late 2021 levels.

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 has dropped from a strong Buy early Apr to a strong Sell based on the ETF Puts & Calls and NDX ETFs.

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 has dropped from a strong Buy early Apr to a strong Sell based on the ETF Puts & Calls and SPX ETFs.

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 22 & EOM. 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 7408, options OI for Mon is moderate with most put support OTM 7200-300.  BE is 7400 due to straddle at 7500 and put support at 7400.  Expect limited downside.

Wed SPX OI is small/moderate with a BE at 7335, but the straddle at 7400 is likely to limit downside to mid 7300s.

For Fri SPX OI is moderate with strong call resistance over 7500 and strong put support at 7300.  The low BE at 7305 indicates more downside potential to low/mid-7300s.

For Fri EOM strong SPX OI is predominately calls over 7300 with put support around 7200, indicating a move below 7300 to mid-7200s is likely.

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 + 0.5 SD, NQ (NDX) is positive at +0.5 SD, YM (DJIA) is positive at +0.5 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
   04.18 NYSE Adv/Dec Volume remains weak, potential analogs to 2008 and 2018    04.25 NYSE Adv/Dec Volume, in depth look at 2017 meltup and expanding wedge
2025
   12.27 A look at the China SSEC stock index vs gold for seven years.    09.27 LT NYSE Adv/Dec volume and Rydex 3x Bull/Bear indicators at levels of prior INT tops.    05.09 NAAIM LT and Rydex 3x Bull/Bear indicators approaching bulish extremes.    05.02 The strong breath Adv/Dec volume may not be all positive, aka late 2015.    04.19 An SPX 2022 bear market analog and an update of the LT NAAIM Index.    04.12 How golbalism has effected foreign purchases of US debt since 1980.    04.05 A comparison to SPX 2020 covid crash and a look at LT NAAIM Index.    03.29 Corporate profits to GDP since 1980 show strong growth from globalism.    03.22 A comparison to Trump 1.0 trade war results for the SPX.    03.15 Update of Technical Indicator Composite & SKEW plus VIX term structure.    01.25 Update of NYSE Adv/Dec volume now at Sell level & SKEW shows warning of INT top (1-3mns).
2024
   12.15 Comparison of NYSE Adv/Dec volume lows to peaks in SKEW shows ST (1 month) warning of INT tops.    12.06 High peaks in SKEW since 2018 have been early warning of INT tops as sign of "max" options bearishness.    09.07 A look at DJIA/SPX analog from the 2000 market top shows possible strength into year-end.    05.25 A possible rounded top aka May 2015, Initial Claims lead Unempl Rate, LT NYADV/Dec warning.    02.17 A potential analog to early 2007 with early Spring and Summer pullbacks before Fall rally.    01.13 A look at LT SPX P&C, very high volume may compress range to 4650-4850 for mns, current Sell.
2023
   12.23 A quick update to the DJIA infl adj comparison presented as a possible analog Dec 2022    12.08 A look at the Feds recession indicator based on the unemployment rate using the Sahm Rule    10.21 A comparison of 5 year periods (1960s, 90s & today) for inflation and int rates (Fed funds & TNX)    09.29 A ST trend for TNX, INT/LT COT bearish for bond futures (TN), LT 20/30 yld curve    09.22 A look at Dow Theory and a DJIA diagonal and possible similarities to late 2015    09.15 Use of Brave browser Shield for enhanced internet access to some sites    07.22 A closer look at the 1966-74 markets indicate marginal new ATHs likely around 2024 Pres election    07.08 TNX since 2020 shows bounce likely temp w/ more back&fill before rounded bottom completes    07.01 Sentiment for BKX is at warning levels, Barcharts ES sentiment is now neutral.    06.24 Another update to VIX call indicator using VIX P/C; how volatility (VIX) effects options pricing    06.17 OTDE Volume & Put/Call Ratio Drilldown - low volatility (VIX) ahead    06.10 Volatility indicators warning of a nearing top    05.20 A review of indicators that performed well in 2015s rounded top    05.13 Comparing the VIX term structure (VIX/VXV) and volatility ratio (VIX/VVIX)    05.06 A review of the current int rates (TNX), unemployment and CPI compared to the 1960s    04.29 Addressing the negative M2 growth misconception, adding Barcharts ES outlook    04.15 Several LT/INT indicators show INT gains likely (SKEW&VIX/VXV,VIX/VVIX,BPSPX&SPXADP)    03.25 Comparison of PCE inflation and TNX rates to late 1990s indicates possible tech meltup    03.18 Strong SPX volume at Mar optn exp supports Spring rally of 10%+    03.11 Low SPX P/C ratio indicates likely trading range    03.04 LT T-bonds (10/20yr) => more Fed tightening, LT NYSE Adv/Dec volume => possible ATH retest    01.28 SPX correlation w/liquidity, Fed bal sheet - Treasury Gen Acct - O/N reverse repo    01.14 Volatility indicators, ST VIX calls indicate pullback SPX 200 pts, INT/LT SKEW & VIX/VXV still bullish    01.07 Gold performance relative to int rates (TNX), and China stock market (SSEC)
2022
   12.24 Late 1960s analog, TNX,Unempl & CPI => Recession 2024-25, DJIA top Feb'66 retest late '69    12.17 A contrarian view to the consensus 2022H2 recession & bear narket low of SPX 3000    12.10 Yield curve inversion (since 1980) not perfect recess indicator compared to inflationary 1960-80    11.26 Sentiment indicators showing a sharp drop late Dec as a setup for a strong Spring rally    11.19 Sentiment indicators showing choppy move higher likely before pullback    11.05 Using the SPXADP with the VIX call only indicator improves effectiveness

Other Indicators
   U.S. 10 Year Treasury Note (TNX Rate), Futures, Extended Hours    ES (S&P 500), Futures, Extended Hours +    NDX (NASDAQ 100), Futures, Extended Hours    Marketwatch Economic Release Calendar    INT/LT Rydex 3x Bear/Bull Fund Ratio    INT/LT NYSE Up/Down Volume 100 & 200 DMAs    S&P 500 Historical Charts with Inflation Adjustment    DJIA 100 Year Historical Charts with Inflation Adjustment

Conclusions.  The adage "Sell on May" may turn out to be appropriate, but seems to be unlikely to be more than a 5-6% pullback before the welcome party for the SpaceX IPO in June.  The June 16-17 FOMC may turn out to be an important date as we get to see what agenda to expect with the new Fed Chair, continued rise in inflation could present a more hawkish tone than expected.  Iran, oil and int rates are expected to be drivers for the ST.

Weekly Trade Alert.  Some continued weakness is expected thru EOM toward SPX 7200-50.  Updates @mrktsignals.

Investment Diary,  Indicator Primer, Tech/Other Refs,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021,
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

Article Index 2019 by Topic, completed thru EOY 2020.02.04
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