Last week I was looking for an SPX bounce to about the 38% retracement of the Feb-Mar decline to about 5750 (200 DMA) before more weakness (5650), and both moves were stronger than expected 5787-5572. Trumps blanket imported auto tariffs of 25% caused a major panic Thur/Fri and prevented the expected late bounce. The common outlook was that car prices would go up 25% or $6-8000 on avg, but my question is that if people can't afford eggs at $8/dz who will buy the cars if prices go up 25%. Trump, in fact, "ordered" car manuf/dealers not to raise prices due to tariffs, and this weeks Tech/Other section discusses possible outcomes of "price controls".
Late Feb I pointed out a surprising sentiment change in NDX futures to a strong Sell after the initial drop and subsequently the bottom fell out over the next month. This week both SPX and NDX saw sharp reversals in the COT data with SPX moving to neutral from weak Sell and NDX to weak from strong Sell. Modest improvement was seen in several "in house" indicators as ST Composite moved to a weak Buy from neutral, VIX call indicator, hedge spread and FOMO calls moved from a weak Sell to neutral.
With Apr 2 expected to be major tariff news, there may some "sell the rumor" relief, but there is still little evidence to support a substantial rally. I had been expecting a trading range from about SPX 5600-5800 until mid-May which is the earliest I would expect any positive signs from the Fed, but with Trumps policy of chaos a new low would not surprise. Fri is the Mar jobs report, but no major changes are expt.
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 little changed, rising toward neutral.
Update Alt EMA. Bearish sentiment rose to just 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 whipsawed back from neutral to a weak Buy.
Update EMA. Bearish sentiment moved to a stronger positive above a weak Buy.The ST VIX calls and SPXADP indicator bearish sentiment VST moved up from near a weak Sell to neutral.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) 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 moved up sharply from a weak Sell to above neutral.
FOMO calls bearish sentiment reversed after reaching a weak Sell on Mon/Tue to neutral by EOW.Bonds (TNX). Bearish sentiment remains at low extremes. Interestingly, the pop in rates in Germany after the megaB rearms proposal a couple of weeks ago seemed to put in a top for the DAX. As Trumps proposals become more extravagant (the "Golden Dome"), I wonder when we see the same effect. 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 dropped slightly toward 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 was little changed.
With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment reversed sharply from below a weak Sell 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 dropped slightly
toward neutral.
Bearish sentiment continued to drop, now at the 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 dropped more sharply as ETF positioning became more
bullish, now at 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 Apr 4. 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 5581, options OI for Mon EOM is large with very strong put support at 5560 and moderate put support at 5600 and 5650. Initial weakness could be reversed to 5600+.
SPX OI for Wed is small with 5600 an inflection pt as below next significant support is 5500 and little o/h resistance. Could be wild for Tariff Day.
SPX OI for jobs report Fri has moderate OI w/strong put support 5500-50 and mild support up to 5650 if 5600 is captured. Call resistance is up at 5700.
IV. Technical / Other
After calling the top at DJIA 14k in July 2007 due to the excessive use of mtg derivatives, I
have been wondering what could cause an even greater LT threat. Avi has
been predicting an even greater banking crisis due to higher debt levels (credit
cards, CRE, shadow banking, etc) and yes the total mtg debt in 2008 was only
$10T compared to total debt of about $20T, but the problem in 2008 was that mtgs
were pooled and sold as "risk free" assets (there had never been a nation wide
housing crisis). As a result hedge funds were able to leverage the mtg
pools at 10 to 1 using exotic derivitaves such as CMOs, etc creating a total of
about $100T in derivative exposure which was greater than the worlds total GDP.
So total private debt exposure today pales in comparison.
Where I see the greatest threat to equities LT term is a profits recession, not
inflation, and record high P/E. The following chart shows corp profits as
a % of GDP (CP%). The chart starts in 1980 and CP% actually fell as GDP
grew until globalization began and corporations were able to purchase or produce
goods overseas at a fraction of the cost of local production while selling at
similar prices locally and over a 60 yr period CP% tripled. Deglobalization is
likely to reverse that trend and a 50% drop in CP% will likely cause a 50% drop
in stock prices over time. Combine this with high P/Es at 28 compared to a
median 20 LT for S&P and this can get real nasty LT.
M.Hulbert recently discussed what
he calls the "greatest single predictor of stocks LT (10yr) returns" which
currently indicates a -4% expt ret for the next 10 yrs.
J.Mauldin
(no J/S)has a good discussion of
tariffs and possible inflation effects.
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 rose sharply from a weak Sell to neutral at -0.0 SD, NQ (NDX) bearish sentiment dropped to a weak Sell at -1.25 SD, YM (DJIA) is neutral at 0.0 SD.
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Conclusions. So far it looks like DOGE may be able to trim a few
$100B from the gov't budget while he has plans on spending a few $T on pet
projects such as tax cuts, "Trump Gaza", Greenland purchase/mining, and the
"Golden Dome" so far. Let's hope that the bond vigilantes don't audit the
White house. On the markets, my outlook for a more rounded bottom (not
V-bottom) is playing out. The longer the SPX stays below the 200D SMA the
more bearish sentiment should get, but sometimes the bears are right.
Weekly Trade Alert. Looking for a lower range for SPX 5550-5650.
Possible wild Wed 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
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic
Long term forecasts
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