No I'm not referring to certain FL congressmen, but to investors who have fallen in love with gov't handouts, both from the Fed and Congress. Last weeks romp over SPX 4000 was in response to additional trillions in stimulus promised by Biden's new infrastructure plan (shades of FDR), while muted response by the bond market was followed by an explosion upwards by tech stocks.
So far it's hard to tell if this the beginning of the "crash up, crash down" scenario as we've seen repeated since 2018, the beginning of the mythical third wave tp SPX 5-6K as some EW analysts are calling for, or something else. With bearish sentiment as low as it is both INT and LT, it's hard to envision the third wave continuation, but the other options are possible.
In the DM/SM section is a review of the SPX and NDX ETF ratio indicators that show the potential for more ST rally in the NDX, but more of a warning for the SPX. In the Tech/Other section, shows the Tech Indicator composite following a 6-week cycle in 2021 with a ST top due mid-Apr and a rare SELL by the INT Rydex Fund Bear/Bull ratio that has preceded each INT top since Jan 2018.
I. Sentiment Indicators
The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment remains at very low levels with very little change for the week.
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 remains at low levels with only a slight decline for the week.
Bonds (TNX). Bearish sentiment in bonds has also declined modestly as rates have stabilized in the expected range of 1.6-1.5%.
For the INT outlook with LT still negative, the gold miners (HUI) bearish sentiment fell sharply as prices fell early in the week then rallied Wed-Thur, but lower sentiment is expected before a resumption of the decline.
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 continued to fall, inching closer to the record levels seen at the Sept & Oct 2020 tops.
And the sister options Hedge Ratio bearish sentiment continues to hover in the mid-range of the past few months with no immediate direction bias.
The INT term SPX Long Term (2x/DM) ETFs (outlook two to four months) bearish sentiment (using the data mining software as a test) did see a sharp downturn with the last few months (since Dec 2020) in a similar pattern to what was seen in May-Oct 2018.
The ST term NDX Short Term (3x) ETFs (outlook two to four weeks) bearish sentiment may help explain the recent strength in the NDX along with stable rates as some are expecting a retest of the highs that could carry the SPX to 4200-300.
The INT term NDX Long Term (3x) ETFs (outlook two to four months) bearish sentiment is somewhat less bullish, however, as the increase in bearish sentiment from the Jan lows is about the same as that to the Sept 2020 top that may indicate a ST top is near.
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 Apr 9. No charts for GDX or TLT.
With Fri close at SPX 4020, options OI for Mon are very light except for the strong put support at 3900, but there is moderate call resistance near the Fri futures indicated level at 4040 with a slight downward bias toward 3975.
Wed has smaller OI where SPX is showing moderate call resistance at 4050 and put support at 3900.
For Fri, we see the largest OI for the week where there is a clear downward bias from call resistance from 4000 to 3950 with put support appearing in the 3900-50 range.
IV. Technical / Other
From a ST perspective the Tech Indicator composite (NYMO+TRIN+NYAD+NYUD) has down a good job in weakly trending markets as seen this year where about a 6 week cycle could indicate a ST top mid-Apr. Early sentiment spikes at the beginning of a up/down trend as in Jun & Nov 2020, similar to the VIX $ Vol, tend to be misleading.
(from Thur update) One of the more reliable (100%) indicators of an INT top (10%+ correction) for the SPX since Jan 2018 is the Rydex Fund Bear/Bull ratio. This week it reached the SELL level of 3.5%. Previous lead times have varied from 1 week in Jan 2018, 1 month in Oct 2018 & 2 months Dec 2019. One interesting aspect is that the increasing lead times have been followed by increasingly large declines. This may fit into the scenario of an Apr top followed by a 6-7% "sell in May decline" with another rally into the June optn exp to test/best ATH before a possible 40% decline that could extend into 2022.
Conclusions. Little change in the primary sentiment indicators last week allow for continuation of the current trend (up). SPX options Oi are relatively small M-W, but stronger on F with an indication of an early week range of 4000-50 and likely 3950-4000 by Fri. A pullback this week is likely a setup for at least a ST top optn exp Fri Apr 16, but with FOMC on Apr 27-28 more strength can be seen into EOM. Following the 1929 stock market crash with record unemployment and decline in growth, strong monetary and fiscal stimulus led to a complete economic recovery by 1937, but an increase in inflation to the 5-6% range resulted in a bond market crash and an ensuing stock market decline of 50%. 1937 also included the famous Hindenburg crash.
Weekly Trade Alert. A modest pullback is expected next week to SPX 3950-4000 before a move up to or beyond the ATH by Apr 16.. 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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