Mueller Gets Trumped

Last weeks stock market reminded me of watching some of the March Madness games where one team would start out hot, looking like they would blow out the other team, only to have the second team come roaring back in the second half.  The struggle in the markets was between the options open interest, where large call positions were pushing prices down, while overall sentiment as posted in the Tues AM update was pushing prices upward.  In the end overall sentiment won in the last two minutes.

The biggest news for the week was that the Mueller investigation report did not implicate Trump of any wrong doing.  This was probably his biggest hurdle for reelection in 2020 and now I see his chances of reelection at 60%+.  This must have China worried since they undoubtedly were hoping to wait out the remainder of Trump's term to get a more receptive President and therefore increases the chances of some type of trade agreement before the election.

A second news item that may have long term implications regarding the markets is the nomination of Steve Moore to the Fed's board of governors.  If appointed, he would be a shoo-in to be the next Fed chairman since he "talks the Trump talk", including recently calling for immediate int rate cuts.  This could be a setup for four years of "crazynomics" last seen when Arthur Burns was chair in the pro-growth 1970s.  We may finally see the "blowoff top" as predicted in my long term forecast of 2015 where I said the DJIA could reach 27,000 based low int rates and that a return to growth could mean 36,000 or higher.

I. Sentiment Indicators

The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment spiked higher on the sharp intraday pullback to SPX 2775 on Mon and has since reversed and could be setting up for a pre exp week pullback the 2nd week of Apr.  The overall pattern resembles Aug-Oct 2018.

The INT view of the Short Term Indicator (VXX+VXXB $ volume and Smart Beta P/C, outlook two to four months) bearish sentiment has only started to reverse its recent spike, so an immediate pullback is not expected.

Bond sentiment (TNX) remains near neutral as recession fears based on the yield curve inversion caused am almost parabolic spike in bonds, but the TLT options outlook last week indicated this may be short lived and is near a peak with the TLT over strong call resistance at 125.

For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment has risen slightly.

And for the ST, the H&S no longer looks viable as the sharp drop in rates fueled demand for PM stocks.

II. Dumb Money/Smart Money Indicators

The Risk Aversion/Risk Preference Indicator (SPX 2x ETF sentiment/NDX ETF sentiment, outlook 2 to 4 days/wks) as a INT indicator shows little change.

The option-based Dumb Money/Smart Money Indicator as short/INT term (outlook 2 to 4 days/weeks) remains in a fairly tight range.

The INT term SPX Long Term/Short Term ETFs (outlook two to four weeks) bearish sentiment is also relatively unchanged.

Long term neutral, the INT term NDX Long Term/Short Term ETF Indicator (outlook two to four weeks) continues to show that short term money is avoiding the tech sector.

III. Options Open Interest

Using Thurs close, remember that further out time frames are more likely to change over time, , and that closing prices are more likely to be effected.  This week I will look out thru Apr 5.  Also, I will try to continue alternating weeks with a special look at the GDX and TLT.

With Fri close at SPX 2834, the Fri options OI showed what happened for most of the week as smaller put support was able to overwhelm stronger call resistance due to overall sentiment.

Mon.  Light open int overall.  As long as prices remain over SPX 2825 hedging could push prices higher to 2850, but a move below 2825 could fall to 2800.

Wed show modest put support at SPX 2790 and may hold in the 2825-40 area.

Fri, jobs report, shows that a push toward SPX 2800 is likely with large open int.  As seen last week volatility early in the week will likely increase put support.

Using the GDX as a gold miner proxy.  For Apr exp, a large increase in put support between 21 and 22 is likely to keep GDX from falling much below 22.  This somewhat lines up with TLT where int rates are expected to be soft thru mid Apr then rise into the summer,

IV. Technical / Other

One of the technical indicators I like to keep tabs on is the High Risk Indicator or $NYAD/$NYUD.  This measures the net adv issues to net adv volume.  Originally, I thought that a high ratio measured more risk but looking at the performance overall, a decline to 1.0 has more often pointed to a top while a move to 4.5 has been a top or bottom.  The current value at 1.83 is declining but not at a warning level yet.

The Hedge Ratio was one of the better indicators for 2015 and last week declined sharply, now approaching the level where an SPX 95 pt pullback was seen early Mar.

Comparing the current period to 2015, we did not get the expreme lows seen in Dec 2015 that may explain why there was no 38% retracement as most were expecting and we seemed to be repeating the levels seen between Jan-May 2015 where shallow but more frequent pullbacks were seen.

Reviewing the 2015 period, there are similarities between now and both early and late 2015.  First, early 2015 was a V-bottom rally, but the failure to see a 38% retrace may bring the longetivity of the rally into question.  Second late 2015 saw essentially a straight line rally to a longer term top, and also started with a 10 to 1 Zweig breadth thrust much like this rally.   The breadth thrust had many convinced that the Nov-Dec consolidation was a wave 4, with Q1 2016 projections of SPX up 300 pts, but instead Jan saw a 300 pt decline.  Also note the "golden cross" about 3 weeks before the bottom fell out.

Conclusions.  Overall sentiment has pulled back from the modest positive outlook early in the week, but does not show the risk of an imminent pullback.  A consolidation in the SPX 2825-50 area early in the week may be enough to shift sentiment downward to support an 80-100 pt pullback starting late in the week, but an early test of 2800 (China trade talk disappointment?) will probably increase support later in the week.

Weekly Trade Alert.  Depending how the week starts, there will likely be a reversal by EOW.  Possible down-up-down.  Updates @mrktsignals.

Investment Diary,  Indicator Primer,  update 2018.03.28  Dumb Money/Smart Money Indicators
Article Index 2019 by Topic
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic
Long term forecasts

© 2019 SentimentSignals.blogspot.com

Fed Dove Feeds Trade War

Last week saw a spike in the VIX from a low of just under 13 to 17.5 on Friday's 50 pt drop in the SPX.  Surprisingly sentiment was little changed, indicating that more downside in the next couple of weeks is expected.  However, the likelihood of the start of a major decline does not seem likely unless complacency remains high as was the case in Oct-Dec of 2018.

The Fed surprise resulted in a significant decline in longer term interest rates with the TNX declining below 2.5% and the TLT hitting 125.  In this weeks options OI, I will show the TLT OI thru June which shows that the rate decline may only be temporary.

With the Fed now supportive of the stock market, this will likely increase the probably of a stronger stance on trade by Trump, thereby increasing the probability of the "nuclear option".  If the Mueller findings turn out to be negative, Trump may feel he has nothing to lose.

I. Sentiment Indicators

The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment rose mildly and seems to be following a downward pattern similar to Aug-Oct 2018.

The INT view of the Short Term Indicator (VXX+VXXB $ volume and Smart Beta P/C, outlook two to four months) bearish sentiment has spiked upward to about the same level as the SPX 100pt decline in mid Mar.

Bond sentiment (TNX) is still looking like the Jun-Sep 2018 period where a three month consolidation was seen before a sharp runup in rates.  Surprisingly bearish sentiment spiked early last week before the late week decline.  In the options OI, the TLT options show a consolidation at the current level may occur into mid-Apr.

For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment improved somewhat with the positive effect of lower rates offset by a late rebound in the US dollar.

And for the ST, the H&S pattern remains viable.

II. Dumb Money/Smart Money Indicators

The Risk Aversion/Risk Preference Indicator (SPX 2x ETF sentiment/NDX ETF sentiment, outlook 2 to 4 days/wks) as a INT indicator was unchanged for the week.

The option-based Dumb Money/Smart Money Indicator as short/INT term (outlook 2 to 4 days/weeks) showed a large drop in bearish sentiment matching the Sep 2018 SPX highs, but was virtually unchanged with the Fri selloff.

The INT term SPX Long Term/Short Term ETFs (outlook two to four weeks) bearish sentiment fell again, but this time due to a large spike in smart money (3x) selling.  Shown in Tech/Other, this happened twice in 2018 - once on the Mar retest and later early Dec before the crash.

Long term neutral, the INT term NDX Long Term/Short Term ETF Indicator (outlook two to four weeks) saw a modest improvement with the sharp NDX selloff.

III. Options Open Interest

Using Thurs close, remember that further out time frames are more likely to change over time, , and that closing prices are more likely to be effected.  This week I will look out thru Apr 5.

First a look at Fri OI as of Thurs close, with only a very small net put OI at  2800 and above and firm call resistance at 2850, it is no wonder prices fell as they did.

With Fri close at SPX 2800, Mon shows very little net put support above 2790, so prices may fall slightly.  The first strong support is at 2750 if there is a major negative news event (Mueller).  Light open int overall.

Wed is more likely to rally if the SPX can hold 2800, where there is strong resistance at 2850, but little put support to push prices higher.

Fri, EOM, is more likely to drop below SPX 2800 and depending on changes during the week, a drop below 2775 could go all the way to 2725.  Large open int.

For following Fri, jobs report, a pin between SPX 2775 and 2800 is likely.  Large open int.

The TLT 20 year bond fund is used as a proxy for interest rates.  For the last several years  when the TNX was 112 when the TNX was 3.2% (11/2018), the TLT was 124  when the TNX was 2.5% (12/2017), and the TLT was 140 when the TNX was 1.5% (08/2016).

Currently the TLT is 125 with the TNX at 2.45%.  Apr exp show that puts should keep the TLT at 122 or higher with fairly large net call resistance at 125.  ST prices may go higher but should remain at/below 125 by mid-Apr.  Obviously, over 125 there is no resistance.

For May exp, large put support drops to 118-9 and call resistance drops to 122 with a likely close at 121.

for Jun exp, large put support drops to 117 with large call resistance at 122 and a likely close 118-121.  A move to 118 should put the TNX at 2.85%.

IV. Technical / Other

One of the reasons I have not been particularly bearish is that the overall Put/Call (less VIX options) CPC Revised seems to be following the Aug-Oct 2018 pattern, but ST does not indicate a bottom.

A closer look at the SPX ETFs showed an interesting divergence as the dumb money (2x)
moved from strong buying to neutral.

While the smart money (3x) rose sharply from the neutral position, the question is whether this points to an Apr or Dec 2018 outcome.

One sign of complacency that may be an early warning is the $SKEW.  As shown below in circles the Oct-Dec 2018 decline started with a falling $SKEW that continued as prices fell.  A more likely option is the Jan-May 2015 period where a sideways to lower $SKEW preceded a topping pattern of several months.

Conclusions.  Sentiment is not giving a clear direction at this time and last week's outlook still seems relevant as a retest of the SPX 200 SMA at 2755 seems likely before ST sentiment moves to a point where a rally back to the mid 2800s is possible.  Bonds (TLT options OI) show that the current recession scare is likely overdone and that economic strength is likely to return in May-Jun.

Another factor that may put a tailspin into Trumps trade agenda is the fallout from the recent record flooding in the Midwest.  Much higher prices are possible for soybean and grain products that means higher feed prices for livestock then higher meat and dairy prices.  I've already noticed a 20% increase in some grain products the last few weeks.  This will kill agriculture exports and inflate the trade deficit even more.

Weekly Trade Alert.  Lower prices seem likely and the options OI show the potential for a midweek rally next week, followed by a sharp decline on Fri..  Updates @mrktsignals.

Investment Diary,  Indicator Primer,  update 2018.03.28  Dumb Money/Smart Money Indicators
Article Index 2019 by Topic
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic
Long term forecasts

© 2019 SentimentSignals.blogspot.com

Stocks Soar and Boeing Crashes

Last week I was expecting a rally in the SPX to 2800+ by the FOMC Mar 20 date, but CBSs 60 Minutes on Sunday caused the rally to be front loaded as Chairman Powell told millions of viewers that the economy is doing fine and that the FED is ready to do "whatever it takes" if markets falter.  Images of Boeing's Max planes misbehaving when the automated guiding system malfunctioned looked like a carnival ride, only much more deadly, causing an 80 pt drop on Boeing's stock to fill a late Jan gap.  A 7 to 1 Dow divisor means the DJIA lost 560 pts due to Boeing's decline, even as the SPX reached the 2830+ area, lead by a strong tech sector.

The Wed Update showed that the early week's move over SPX 2800 opened up a move to the call resistance at 2815 and 2825 at the optn exp close on Fri, and even though the high for the day was 2831, the 2825 resistance pulled the close down to 2822.  I still think a tradeable high will be reached Wed with a likely "sell the news" event of the FOMC results.  Options OI show that a drop by the EOM is possible to SPX 2725-50.

A couple of weeks ago I introduced a "new" VIX Call Indicator (smart money) that gave a SELL before the early Mar decline.  This week I noticed a large increase in VIX put buying and decided to use the same criteria as a "dumb money" indicator for VIX puts.  More in Tech/Other.

Trader Joe came out with an excellent analysis Wed & Thur that graphically shows both my ST and INT outlook for EW aficionados.  More in conclusion.

I. Sentiment Indicators

The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment has moved down from neutral and may be following the Jun-Oct 2018 pattern as the SPX works higher for an INT top.

The INT view of the Short Term Indicator (VXX+VXXB $ volume and Smart Beta P/C, outlook two to four months) bearish sentiment has also turned back down, warning of limited upside and INT top approaching.

Bond sentiment (TNX) is still looking like the Jun-Sep 2018 period where a three month consolidation was seen before a sharp runup in rates.  A brief spike in bearishness early in the week turned down as rates fell.

For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment fell sharply last week and may be warning of a downturn.  More in options OI section for GDX.

And for the ST, the H&S pattern may still be valid with low bearish sentiment warning of a downturn.

II. Dumb Money/Smart Money Indicators

The Risk Aversion/Risk Preference Indicator (SPX 2x ETF sentiment/NDX ETF sentiment, outlook 2 to 4 mns/wks) as a INT indicator has also turned down as the recent rally may be nearing an end.

A similar measure using stocks/bonds (SPX/TNX ETF) sentiment that I show occasionally, warned that low bearish levels for bonds compared to stocks could cause money to flow into stocks from bonds.

The option-based Dumb Money/Smart Money Indicator as short/INT term (outlook 2 to 4 mns/wks) has moved down levels that saw short term pullbacks between the May-Oct 2018 advance.

Its sister Hedge Ratio shows tha the level of hedging (insurance) has also dropped sharply, increasing the potential for sharp declines.

The INT term SPX Long Term/Short Term ETFs (outlook two to four weeks) bearish sentiment continues to hover at low levels as smart (3x) money remains neutral.

Long term neutral, the INT term NDX Long Term/Short Term ETF Indicator (outlook two to four weeks) remains at low levels similar to the SPX ETF Indicator as smart (3x) money is neutral.

III. Options Open Interest

Using Thurs close, remember that further out time frames are more likely to change over time, , and that closing prices are more likely to be effected.  This week I will look out thru Mar 29.

With Fri close at SPX 2822, Mon call hedging will have a positive effect if prices remain over 2820 and could push toward 2840.  A move below 2820 could easily reach 2800 (first put support) or lower.  Moderate open int overall.

Wed recently added put support at SPX 2805 above that there is small call resistance at 2820-25 and larger at 2845.  There is some put support at 2775 and lower.  Light open int overall.  There is a wide range of possible price fluctuation between 2775 and 2870.  Possible high 2845 then drop to 2800 or lower.

Fri has very large open int with call resistance probably capping prices at 2810.  The large overlaps between 2750 and 2800 may result in volatility in that range.  A move below the 2750 puts and 2745 calls could drop to 2725.

For Mar EOM, SPX has very large open int with strong call resistance at 2800 and little net resistance down to 2725 similar to the previous Fri.

I also wanted to take a look at the GDX as a gold miner proxy.  Here for Fri exp you can see a possible high at 22.5 with some downward pressure due to calls at lower prices and the GDX high was 22.58 with a close at 22.30.

For the Apr exp there is more downward pressure where call resistance should push prices down toward 21 as long as prices don't rise above 23.  Not a large decline and may be volatile with some reaction to SPX prices, but it could mean the beginning of the H&S top.

IV. Technical / Other

A surge in VIX put buying last week lead me to look at the VIX put volume using the same criteria as the "new" VIX Call Indicator.  The result is a similar "dumb money" indicator, where an increase of 0.5 or 50% of the mean would indicate a SELL when the SPX is above the 20 SMA (0 line).  This actually works better as a ST indicator generating 8 SELLs vs 4 for the Call Indicator.  For 2018, this includes early Mar, mid Apr, mid Jun (.45), mid Sep, and early Nov.  For 2019, last week (.5) and weak (.4) in early Jan and early Feb.  This indicator may work better ST since the lead times are generally days, not weeks (except Sept 2018), but the declines may also be shallower.

Conclusions.  Overall sentiment indicators have dropped to similar levels as early Mar when we saw a 95 pt drop in the SPX.  Trader Joe thinks we may be in an ending diagonal that could mean a similar drop to SPX 2740ish before a final move up to SPX 2840-50 then an decline to 2640.  Options OI indicates this drop is likely the next two weeks, and since the China trade talks were put off to April, we have the possibility of another hope rally afterwards into mid Apr that fits TJs scenario.  For the INT term, once the ED is complete the bigger picture to complete this B-wave would be a sharp decline to 2640 to fill the late Jan gap (possible Mueller results, trade disappointment) then a final rally to test the Jan 2018 highs at SPX 2875 before a C-wave down.  Possible timing may indicate a late Apr-mid May drop to SPX 2640 to get the CNBC pundits warning "sell in May" then a final summer rally for the B-wave.  With 2019 starting out as the strongest year since 1987, it would be fitting to see a July top also similar to 1987.

Weekly Trade Alert.  Wed (FOMC) may provide a ST top in the range of 2830-40.  Last Wed was the highest SPX volume at 3.7M (Stockcharts) since the Sept 2018 optn exp top at 4M, except the Dec panic lows at 5M, and could have been the high at 2831.  A pullback is expected into EOM to about 2740 before the next rally.  Updates @mrktsignals.

Investment Diary,  Indicator Primer,  update 2018.03.28  Dumb Money/Smart Money Indicators
Article Index 2019 by Topic
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic
Long term forecasts

© 2019 SentimentSignals.blogspot.com