Will the Fed Change Its Inflation Measure?

Last weeks SPX options OI was showing a negative bias to the mid 7600s before a late recovery to near unchanged, but no guidance was given.  As it turns out, a flare up between the US and Iran caused a $10 spike in oil (WTC/bbl) from $80 to $90 early in the week sending the SPX to an early low at 7611 on increased Inflation fears, near the early Aug gap at 7610.  Thur, however, Fed head Waller indicated that he would consider the trend in the CPI (core at 2.5%, less food and energy, see table) as supportive of no rate hikes and the SPX shot back up to the 7750 area.  It's interesting that the PCE vs CPI inflation debate is now in play and PCE was preferred while its inflation costs were lower, but now that core CPI has dropped closer to the Feds 2% target and the core PCE remains near 3.5%, Trumps forces are pushing for use of the CPI. (Note: PCE is more reflective of business costs, esp memory chips for data centers).  A continued downward trend in CPI on Sept 11th could determine the FOMC decision Sept 16.

For the week the SPX ended up 7 pts, so last weeks no call was probably correct given the unpredictable events which caused the volatility.  This weeks SPX options OI  is showing more of the same is likely with early weakness and a slightly higher close with Fridays CPI inflation data.

Sentiment indicators are by and large unchanged although the ST Composite has slipped from positive to neutral.  Simons ISPYETF discusses sentiment outlook, including the now paywall NAAIM which has breached the strong Sell level at 100.  I have also been watching the SKEW for a run to about 160 as an indicator of high OTM put option premiums as smart money tends to buy OTM puts prior to tops.

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 rose to a weak Sell.

Update Alt EMA. Bearish sentiment rose 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 declined to near neutral.

Update EMA. Bearish sentiment declined to neutral.

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 remains little changed above a strong Sell.

Update FOMO calls. Bearish sentiment remains near a weak Sell.

Bonds (TNX).  Bearish sentiment remains at low extremes as rates inched higher.

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 near 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 is little changed at a strong Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment is little changed just over 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 rose slightly to a weak Sell.

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 remains at 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 above a strong 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 Sept 11. 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 7719, options OI for Tue (Mon holiday) is moderate with a BE at 7710 with put support starting at 7675 and call resistance above 7775.

Wed SPX OI is smaller with a large call position at 7825 and put support at 7550 with little in-between.  Vollatility likely with negative bias to BE at 7680.

For Fri (CPI infl) SPX moderate OI shows positive bias toward BE at 7720.

For Fri 18th opt exp PM moderate SPX OI shows same bias to 7650 as AM from last week.

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 rose above neutral at +0.2 SD, NQ (NDX) fell below a weak Sell at -1.20 SD, YM (DJIA) remains a weak Sell at -1.5 SD.   A quick look at gold (GC), bearish sentiment is in-between a weak and strong Sell at -1.75 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    07.31 SK KOPSI crash analog to NDX 2000 Mar-May crash w/sharp ST recovery    08.07 The LLM Token Expenditures Index for AI profitabiliy indicates future EPS problems
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.  So far stocks indicated in late July and early Aug regarding the KOPSI bubble crash vs the NDX in 2000 and the LLM token costs have proved prescient as there was expected to be a very sharp recovery rally for about a week followed by a two month consolidation that could last thru Sept.  The decline in token costs for high price AI models due to low cost competition has pressured most of the AI hyperscalers while NVDA continues strong due to increased hardware demand with Fri advance 1 pt short of an ATH.  From a LT perspective the AI valuation model seems to have inherent flaws as discussed at Phils Stockworld last week and last weeks Thur AM problems which caused three of the major AI models to crash for several hours could indicate operational problems as well.

Weekly Trade Alert.  We could see a repeat of last week with weakness into mid-week followed by a strong close with favorable CPI data on Fri (see SPX OI).  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

© 2026 SentimentSignals.blogspot.com

How Long Can the Summer Doldrums Continue?

There was no specific guidance last week other that the warning that the negative trend in NVDA would likely be a false indicator and the 10% decline prior to EPS late Wed resulted in a 10% one day jump after EPS on Thur.  Through Wed the SPX gained a net +2 pts to 7674 but Thur jumped back over 7700 with a close at 7731.  Warsh's Jackson Hole speech was interpreted as being "hawkish" with his talk of holding inflation targets at 2%, but it remains to be seen if this is more than Trump-style bravado.

Bessents plan to lower long term interest rates thru Treasury purchases seems to be largely ignored by the bond market as the 30 year T-bond remains over 5%.  Late Sept with the FOMC Sept 15-16 and Oct continue to look like high risk periods, especially if we see rises in fed funds and/or LT T-bond rates.

Small increases in bearish sentiment have done little to change the outlook as ST indicators (ST Composite, VIX calls) are modestly positive while INT/LT indicators remain at the weak Sell or lower levels.

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 rise closer to a weak Sell.

Update Alt EMA. Bearish sentiment rose mid-way between a weak and strong 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 remains above neutral.

Update EMA. Bearish sentiment rose slightly.

The ST VIX calls and SPXADP indicator bearish sentiment rose further 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 rose above a strong Sell.

Update FOMO calls. Bearish sentiment rose to a weak Sell.

Bonds (TNX).  Bearish sentiment  remains at low extremes with rates little changed.

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 to a weak Sell.  A 15% rise in gold has now produced a 50% gain in HUI in what appears to be an EW zig-zag.

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 but remains at a strong Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment rose to just over 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 fell further below a weak Sell.

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 rebounded to a weak Sell with the improvement 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 rose above a weak Sell with the improvement 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 Sept 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 7712, options OI for Mon is large with a negative bias due to the $OI and BE of 7655 but may hold near the 7700 straddle.

Wed has small SPX OI with some negative bias toward BE at 7675.

For Fri SPX has moderate/large OI with a positive bias toward 7710, but weak support/ resistance between 7500 and 7900 could mean more volatility.

For Fri AM opex week SPX OI is very strong with another huge straddle at 8K that could attract prices, but BE is only 7650.

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 rose to neutral at 0.0 SD, NQ (NDX) fell to a weak Sell at -1.0 SD, YM (DJIA) remains a weak Sell at -1.5 SD.   A quick look at gold (GC), bearish sentiment is in-between a weak and strong Sell at -1.75 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    07.31 SK KOPSI crash analog to NDX 2000 Mar-May crash w/sharp ST recovery    08.07 The LLM Token Expenditures Index for AI profitabiliy indicates future EPS problems
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.  Investors seem to be on hold as the stalemate between the US and Iran has resulted in stabilizing the price of oil (WTC/bbl) in the low 80s.  This may stabilize the inflation rate and it is hard to tell how far the current adminstration is willing to go to bring inflation down, while tariffs and on-shoring production reduce the availability of lower cost imports.  Interest rates on bonds will likely remain under pressure as the Trump spending spree continues to try to match decades of growth in China's industrial base.

Weekly Trade Alert.  Much like last week, prices are expected to remain in a tight range.  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

© 2026 SentimentSignals.blogspot.com

Will Jevons Paradox Save the Market?

Last week INT/and LT indicators were indicating that a pullback was likely except for the ST Composite which remained at neutral.  SPX options OI was also indicating that 7725 or lower was likely, but the large SPX straddle at 8K (~140 p&c) at the Fri AM exp convinced me that the pullback would be limited.  However, I was wrong as the week started with strong concern over rising LT rates which rose to over 5.3%, the highest level since 2007, and the SPX fell to the mid-7600s.  Apparently, this was enough to panic the US Treasury which on Wed announced a plan to double its purchase of bonds for the next quarter.  This in turn lit a fire in the crypto and PM markets assuming higher inflation as the outcome, and int rates ended the week largely unchanged. 

Bearish sentiment increased slightly overall with the exception of the DM/SM indicator.  Many are still expecting a move to SPX 8k before a wave 5 top, but a larger pullback may still be in the wings for late Sept and beyond due to tech EPS.  Tech supporters are talking about the "Jevons paradox" related to LLM token prices and usage volume as Citadel Securities recently pointed out, the recent 40% decline in token prices resulted in a 50% increase in usage.  However, consider a farmer who sells 100 apples for $1 with $100 in revenue, if lower quality competition forces him to lower the price to $.60 and he sells 150 then his revenue is only $90, or a 10% decline.  With tech EPS expected to grow 30%/yr, this may not be welcome.

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 moved up from a strong Sell but still close.

Update Alt EMA. Bearish sentiment moved up from a strong Sell but well below 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 remained above neutral.

Update EMA. Bearish sentiment remained above neutral.

The ST VIX calls and SPXADP indicator bearish sentiment reversed strongly to neutral with strong VIX call buying on up days.

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 remains near a strong Sell VST (grn).

Update FOMO calls. Bearish sentiment reversed back above a strong Sell.

Bonds (TNX).  Bearish sentiment sentiment remains at low extremes.  After the pullback in rates after the US Treasury buyback announcement, rates ended at a new high for the month on Friday.

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 near a weak Sell, while the recent rally seems to be more from US economic weakness and the Treasury buyback which weakened the US$ by about 3% over the last month.

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 continues to fall into a deeper strong Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment is largely unchanged at 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 fell below a weak Sell as the 2X ETF sentiment continues to fall and may reach a strong Sell as in late 2021 before a major top.

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 remains mid-way between a weak and strong 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 at a strong 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 Aug 28 & 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 7674, options OI for Mon is moderate with a BE at 7700 due to a fairly large put position.  Prices could rise toward 7700.

Wed has small SPX OI with a lower BE at 7690 due to a large call position at 7650 offset by puts at 7700 and 7750. SPX 7650-7700 is likely.

For Fri moderate SPX OI has a BE also at 7700 that could keep prices in the 7650-7700 area, but clear support/resistance is 7550/7800.  With NVDA EPS after close and PCE in AM, there is much room for volatility.

For Mon EOM moderate/strong SPX OI has a BE at 7620, but here also straddles between 7600 and 7750 can indicate a wide range.

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 dropped below a weak Sell at -0.6 SD, NQ (NDX) dropped to neutral at +0.0 SD, YM (DJIA) remains a weak Sell at -1.5 SD.   A quick look at gold (GC), bearish sentiment is in-between a weak and strong Sell at -1.6 SD.

Conclusions.   Much of what happens next week will be determined by the monthly PCE inflation data in the AM and NVDAs EPS in the PM Wed 26th.  I have little guidance to give but there seems to be a pattern with NVDA stock price as NVDA stock price seems to decline before a positive surprise and rally before a negative outlook and the current price is down 5% last week and 10% from an ATH.   Jevons paradox would predict strong demand for the LLM GPUs.

Weekly Trade Alert.  No price guidance.  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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