Well, it looks like I was off by half a day with an expected high FOMC Wed as high as SPX 4225 before a modest pullback toward 4150-75. As it turns out AAPLs EPS after Wed close was the catalyst for a move up 4218 early Thur with the following low at 4175. During the week I was testing several new indicators using a breakdown of the NYAD & NYUD data that may indicate a ST breakdown from the current range over the next two weeks toward the SPX 4050 area as discussed in the Tech/Other section.
Most indicators are not pointing to an immediate INT top with June still a reasonable target. Looking more closely at the May 2015 data as a possible double, the top in 2015 was 2135 and a double would work out as 4270. There have been recent reports by Nomura of unusual US$/Euro hedges for Aug/Sept that may indicate the Fed could begin to taper its bond purchases at that time, even as ST int rates are held constant, and this may lead to increased volatility for Sept-Oct.
I. Sentiment Indicators
The overall Indicator Scoreboard (INT term, outlook two to four months) bearish sentiment remains near the extreme lows seen at the Jan 2020 top.
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 has pulled back after last weeks surge over 4200, however brief.
Bonds (TNX). Bearish sentiment in bonds continues to weaken even as interest rates may have bottomed last week around 1.53%.
For the INT outlook with LT still negative, 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. Bearish sentiment continued is sharp decline even as prices fell with a strengthening US$ (economic growth) and int rates, possibly due to the hopes that higher inflation will save the PMs.
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 may have bottomed similar to early Jan 2020, forming a rounded bottom several weeks before the INT top.
And the sister options Hedge Ratio bearish sentiment may be also bottoming which also happened in Jan 2020.
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 May 7. SPX only this week.
With Fri close at SPX 4181, options OI for Mon small but with most puts & calls clustered around 4050-4250. Fri selloff may have increased put support, but currently a retest of the 4200 area seems likely due to large put OI. Likely range 4175-4200.
Wed has somewhat larger OI where SPX put support appears weak above SPX 4050 and could see a break below the 4175 area.
Fri is jobs report day with an expected blowout that could lead to increased volatility. There is little put support below SPX 4150 until 4050 and strong call resistance at 4250. A strong number may push prices over 4200 early, but may lead to an increase in int rates and a strong reversal.
IV. Technical / Other
Over the past two weeks, I have downloaded some new technical and volatility data. Today I want to look at the volume data, namely the components of the NYAD ($NYAD = $NYADV - $NYDEC) and NYUD ($NYUD = $NYUPV - $NYDNV). In the past I have used the $NYUPV/$NYDNV - as the LT volume indicator, the $NYDNV/$NYDEC as a capitulation indicator and the $NYUPV/$NYADV as a high risk indicator. Today I want to focus on the $NYDNV/$NYDEC. The table below shows the various components with ratios and their "fit" to future SPX returns from July 1, 2020 thru last Fri. The best fit came with the capitulation indicator components. The stockcharts version is here and shows that capitulation or high declining vol/issues is often a sign of ST bottoms and the reverse also works well for ST tops.
The large day to day fluctions makes the timing ambiguous sometimes and I found that combining it with the TRIN (NYDNV/NYDEC - TRIN) helps with the readability. The reason I am showing it this week is that Wed reached the the 6th Sell level (-1 SD) of the past 10 months and may be a warning of a ST breakdown. This indicator is in "trial" stage only, so use with discretion.
A slightly better "fit" was found using the Std Var version using NYDNV and NYDEC as a B - 1/A calc and the inverse TRIN. This version is slightly less bearish.
Conclusions. Some unusual setups are accumulating that point to more significant downturn than has been seen over the last two weeks. The NDX appears to have put in a double top around 14070 on the daily charts with the SPX showing a double top at 4215-18 on the hourly charts Thur. Strong selling has appeared around SPX 4200 with strong reversals after blowout EPS for AAPL and AMZN. Weakening volume technical indicators as shown by the NYDNV/NYDEC data are also a strong warning of a possible 3-4% pullback over the next two weeks, likely to the SPX 4050 area.
Weekly Trade Alert. We may see continued strength for Mon/Tue but a breakdown is likely to start by mid-week. Fri job report remains a wildcard and and may result in a whipsaw if the expected strength is seen. I plan on posting updates for the options OI Wed AM. 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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