One indication that strength is returning to the stock market was a sharp increase in the NYSE Up/Down volume which had shown little improvement in last weeks Tech/Other section. This indicator is now showing early signs of duplicating the strength shown after the Aug 2015 flash crash and may support a doubling of prices once a final bottom is achieved. In this weeks Tech/Other section, a closer look at 2015 shows similar price behavior to today where the Aug 2015 lows were followed by a 3 week rally retracing 58% of the decline (for 2020, SPX 2820-30) before a retest of the lows the next 2-3 weeks, then a larger 90%+ retrace before lower lows several months later (Jan-Feb 2016).
Otherwise, this weeks discussion is somewhat brief due to the holidays,
I. Sentiment Indicators
The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment continues to drop sharply as the SPX has now reached the levels of the Nov 2018 retracement.
The INT view of the Short Term Indicator (VXX $ volume and Smart Beta P/C [ETF Puts/Equity Calls], outlook two to four months, no SPX vol adj) bearish sentiment has dropped even more sharply and may reach the levels prior to the Dec 2018 selloff over the next few days.
Bonds (TNX). Interest rates continue to disconnect from sentiment as the Fed seems willing to backstop all bond markets, last week adding high-yield corporate bonds.
For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment has fallen sharply as the increased intervention by the Fed has pressured the US $ lower and gold higher.
II. Dumb Money/Smart Money Indicators
The option-based Dumb Money/Smart Money Indicator as short/INT term (outlook 2 to 4 mns/weeks) bearish sentiment has fallen to levels seen at the Feb 2020 top and at similar levels before the 2019 pullbacks. Would support retest of Mar lows.
And the sister options Hedge Ratio bearish sentiment failed to rise to levels seen in the 2018 and 2019 corrections and has now moved modestly lower. Would support a modest pickup in volatility.
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 negative reinforcement when put support is broken or call resistance is exceeded. The SPX hedge spread (SPX puts - ETF calls) is negative, indicating that put support may not hold. This week covers the SPX for Apr 17 & 30; also a look at the TLT for Apr exp.
With Fri close at SPX 2790, options OI for Apr 17 PM are very small with the only standout large put OI at 2625 that should hold any decline.
For EOM Apr 30, most of the LT positions are puts at close to 2x calls that probably explains the high VIX, but I have noticed ST strikes show higher calls, so LT reliability may be low. However, a break below SPX 2700 has somewhat of a bias toward 2450 with most of the in between strikes hedged. SPX 2400 shows very strong support.
Using the GDX as a gold miner proxy closing at 28.95, last week showed an upward bias toward 26-28 with Fri price jumping from 26.20 to 28.95
.
Currently the TLT is 165.4 with the TNX at 0.73%. There is strong support at 160 with a negative bias to that level. Resistance is strong at 170 and stronger at 175.
IV. Technical / Other
The sharp increase in NYSE Adv/Dec Vol last week is now on track to match the Sept 2015 retrace of 58% off the Aug flash crash lows (below). It remains to be seen how closely the current period will track with 2015, but a similar rise in Adv/Dec Vol over the next few months would support a 100% rise in the SPX from the lows over the next few years.
Although the Aug 2015 flash crash occurred over 4 days vs the 4 week crash of Mar 2020, the rallies of the lows have so far been similar. In 2015 the SPX rallied for 15 days with a reversal on day 16 to complete a 57.5% retrace.
So far in 2020 the SPX has rallied for 13 days and a similar time frame pts to a top Tu/Wed next week. Raj at Time & Cycles also indicates a turning date of Wed/15th.
Also, one of the data mining indicators, the SPX hedge spread (SPX Puts/ETF Calls) is nearing a SELL level. This indicator is designed to show the strength of options OI put support/call resistance.
Conclusions. Sentiment indicators are showing that the meteoric rise from the Mar crash lows may be near an end. However, the lack of strong SELLs are pointing to no more than a retest of the lows with most expecting a mild pullback to SPX 2350-2450, but a break of those support levels could target 2200-2300. New lows seem unlikely. With the resurgence of the Adv/Dec volume indicator similar to 2015, a double bottom could result in a 90%+ retrace to near the ATH before a potentially stronger decline late Summer/early Fall.
Weekly Trade Alert. Some of the timing indicators are pointing to a mid-week top, possibly SPX 2820-30. With monthly opt exp Fri, there may be some upward bias late in the week. Updates @mrktsignals.
Investment Diary, Indicator Primer,
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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