Last week was somewhat weaker than expected as oil prices (WTIC/bbl) rocketed
higher from the low $90s to over $104 Thur as Houdi/Iran contingent expanded the
blockade of middle east oil into the Red Sea, cutting off access to the Suez
Canal. The US/Saidi alliance was completely caught off guard and now opens
a second front for Trump to contend with. For the SPX this meant new lows
thru Thur to the 7580 level before a sharp Fri recovery to 7660 with the CPI release
showing a continued decline of the core rate to 2.4%. This somewhat
muddles the Wed FOMC outlook after Waller last week said he would be content
with keeping rates constant with a lower core CPI, but the surge in oil prices
increases the probability of higher future inflation. A discussion of the
PCE, CPI and Fed rate changes is included in this weeks Tech/Other section.
The probability of a 0.25% FOMC hike is listed as 87% by
CME Watch.
ST SPX sentiment moved to a weak Buy with the ST Composite and VIX call
indicator moving from neutral to a weak Buy, while INT/LI indicators remain in
the weak to Strong Sell area.
Discuss.
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 improved but remains a weak Sell.
Update Alt EMA. Bearish sentiment improved but remains 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 rose above a weak Buy, but pulled back Fri.
Update EMA. Bearish sentiment rose above neutral about halfway to a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment moved above a weak Buy
from neutral with negative SPXADP and strong VIX call buying on down 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 improved moving up to near a weak Sell.
Update FOMO calls. Bearish sentiment improved moving from a weak Sell to
near neutral.
Bonds (TNX). Bearish sentiment remains at low extremes as rates
closed just below 5% as Bessents bond purchases did little to offset inflation and
deficit jitters after oil (WTI) rose above $100/bbl and Trump promised a $1T+
voter payout if the GOP wins the midterms.
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 at 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 rose to just above a strong Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment remains between neutral and 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 remains at 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 near 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 rose to 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 Sept 18. 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 7657, options OI for Mon is small/moderate with put
support at 7600 & 7700 and call resistance at 7650 and a BE at 7685.
Upside likely but limited 7675-7700.
Wed FOMC day, SPX OI is small with put support at 7650 and call
resist at 7675 although over 7675 could see positive delta hedging. Should
remain near BE at 7675.
For Fri AM very strong SPX OI shows BE improved to 7675.
For Fri PM strong SPX OI shows BE at 7655 with put support at 7600 & 7625 and
call resist at 7675 & 7700. Could see some weakness into PM.
IV. Technical / Other
This week I wanted to take a brief look at the core inflation measures for PCE
and CPI and the Fed funds rate for the last 10 years. The Fed claims to
base rates on the core PCE but since 2020 they seem to be following the CPI
instead, while the CPI seems to be lagging the PCE by about a year. As a
result instead of raising rates in 2021 when the PCE hit 4%, they waited a year
until the CPI hit 4%, allowing the CPI to move higher and then did not cut rates
until a year after the CPI topped. With the Aug core CPI on Fri declining
to 2.4%, The same policy could mean no change, but the new chair Warsh is an
unknown and the CME futures are
showing an 87% prob of a hike to 3.75-4.0% range. Data is annual change
quarterly (DPCCRV1Q225SBEA, CORESTICKM159SFRBATL, BOGZ1FL072052006Q).
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 above neutral at +0.15 SD, NQ (NDX)
remains
a weak Sell at -1.20 SD, YM (DJIA) remains a weak Sell at -1.35 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
2025
2024
2023
2022
Other Indicators
Conclusions. Iran seems intent on stepping up the pressure on Trump
prior to the election with Trump admitting that a solution is unlikely until
after the election. The bond market apparently does not like Trumps lack
of concern over inflation as the 10 year bond rate (TNX) is now just below 5%.
In an interesting aside, in 1987, the TNX (Fred,DGS10) rose from 5% to 10%
before the stock market crash and at the time the DJIA div yield was 2.5% and
many felt much of the crash was due to an asset allocation switch from stocks to
bonds at a 4x yield differential. Today the DJIA yields about 1.5%, so a
4x yield differential is around TNX 6%. ST sentiment is showing some
upside bias next week, but Iran news and oil prices will remain important.
Weekly Trade Alert. Some upside is likely with a tight range unless surprise from FOMC, Iran with range 7625-7700
. Updates @mrktsignals.
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
2025
2024
2023
2022
Other Indicators
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.
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
2025
2024
2023
2022
Other Indicators
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.
