A New Era

Last week finally made it to my earlier target of 3860 after falling short the week of the 15th.  A move down to test the SPX 50 SMA is still possible by the EOM similar to Jan 2020, but higher prices have caused the 50 SMA to rise faster than expected to 3794 and may reach 3820-30 by Fri.  Many EWers were whip sawed with the SPX moves as pointed out last week and have now switched from bearish to bullish ST.  My target is at least a break of the prior weeks low at 3748 to get everyone bearish before a final INT rally for the next round of stimulus perhaps to only 3870-90 as many are expecting 3900+ to sell/short.

Late 2017 was not friendly to BTC and the PMs and we may be setting up for a repeat as pointed out by sentiment for HUI as well as BTC with a chart in the Tech/Other section.  This may turn out to be a precursor to a 2018-like outcome for 2021.  An interesting read last week by John Mauldin on the potential risks of the new c-virus strains.

Regular sentiment measures were relatively unchanged last week, so I've spiced things up a bit by looking at the SPX and NDX ETF hedge ratios in the DM/SM section as well as starting a new way to look at P/C ratios starting with the SPX in the Tech/Other section.  I found some interesting data at CBOE poking around their site MLK day that compares notational ($) value and volume here that might be used to create a $ wtd composite P/C ratio, the only problem is that it is clearing house data by exchange and does not use the trading floor categories for Equity, SPX, ETF and VIX.

I. Sentiment Indicators

The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment continues to decline, slowly but steadily, but not yet to extremes.

The INT view of the Short Term Indicator (VXX $ volume and Smart Beta P/C [ETF Puts/Equity Calls], outlook two to four months) bearish sentiment also continues to decline, slowly but steadily, but not yet to extremes.

Bonds (TNX).  Bearish sentiment in bonds is mostly unchanged as rates hover around 1%.

For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment continues to drop even as prices are weak and are approaching the levels seen before the Oct-Nov 2020 selloff.

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 moved up slightly.

And the sister options Hedge Ratio bearish sentiment also has moved up slightly.

The INT term data mining SPX ETF Hedge Ratio (SSO/ETF Calls) bearish sentiment has reached extremes last seen in ealy Jan 2018.

The INT term data mining NDX ETF Hedge Ratio (QLD/ETF Calls) bearish sentiment is not as extreme as the SPX, but has matched the level seen before previous pullbacks.

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 Jan 29. No charts this week GDX or TLT.

With Fri close at SPX 3841, options OI for both Mon & Wed are very small compared to Fri EOM.  Here, we see some support at 3800 and 3825 and a decline into that area is likely.

Wed has somewhat larger OI where SPX shows extremely high P/C, but puts are way OTM.  First level of support may be hit at 3755.

For Fri, call resistance exists above SPX 3825 with put support levels at 3700 and 3725.  A test of the 50 SMA around 3725-35 seems likely.

IV. Technical / Other

First, I want to take a look a Bitcoin that seems to be putting in a fractal to its Dec 2017 blow off top, wks before the SPX Jan 2018 top.  If BTC's decline continues the INT target is 18K (2017 top), does this imply a repeat of 2018 for the SPX?  It does fit my LT SPX outlook with a 10%+ decline Q1 and a mid-year rally with more weakness by EOY.

Next up is the SPX P/C ratio. Since most of my work is on the SPX, I've always wondered why its P/C ratio seems so crippled. Below is the standard EMA chart.  Note how bearish sentiment turns low well before the SPX top then rises into the top.

While this is the same ratio from the data mining software using the 10 day MA.  The 10 day SMA tracks the 20 day EMA closely, but with less volatility, due to the higher EMA weights for current data.  What is evident when including puts & calls is that volume spikes tend to occur prior to INT tops, but this is not picked up in an ordinary P/C ratio.

And finally using the inverted function for puts, the volume changes are reflected in the put/call spread, creating a put/call "ratio" that is 10X more effective.  The low volume of puts and calls since the Mar 2020 selloff actually turns out to be a bullish indicator where the low SPX P/Cs recently actually show up as neutral to positive sentiment.

Conclusions.   The fact that we made it thru Wed without any new riots probably contributed to the SPX 50 pt surge and makes you wonder about Trumps prediction of a market crash if he lost, assuming you believed anything he said.  I was expecting a rally although not to ATHs.  Now that everyone has turned bullish again, we will have to see how next week goes, but a decline below the prior weeks low at 3748 seems likely before a stimulus fueled rally into mid-late Feb.

Weekly Trade Alert.   A decline down to the 50 SMA. possibly 3720-30, by EOM or early Feb should be a buying oppty far rally back to ATHs.  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

© 2021 SentimentSignals.blogspot.com