Increasing Uncertainty

Last week I was looking for a posiive bias due to the continued moderae hedging and ST indicator with a possible retest of the ATH, but was obviously not bullish enough as the SPX rallied from 4440 to 4510.  Oddly 80% of the gains came the first two hours of trade Mon and Fri.  The LT target of 4550-4600 may come sooner than expected.

More divergences are appearing between price and sentiment as the hedge spread has now begun to roll over and is now just above neutral.  The ST Composite has moved to below neutral.  Last weeks jump in the SKEW to over 160 puts the INT VIX Buy & Sell component into a positive (lower volatility) mode.  This weeks Tech/Other section looks at the latest Composite Put-Call Revised indicator has joined the other INT/LT indicators indicating a Sell at a more extreme than seen at the Mar 2020 top, while the ST/INT VIX call indicator shows no signs of an expected pickup in volatility.

I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. 1st is the SPX and ETF put-call indicators (30%), 2nd the SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility ratio of the ST SPX (VIX) to the ST VIX (VVIX) with the VXX $ volume.

This indicator is showing very low bearish sentiment similar to Jan-Feb 2020 top, indicating that an important INT top is near.

The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the VXX $ Vol/SPX Trend. Weights are 80%/20%.

This indicator is slightly below neutral and likely means choppy trading ahead.

The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

Since the mid-July pullback, this indicator has remained mostly positive thru much of the SPX 300+ pt rally, but is now approaching levels where more than a 2+% pullback over two days is likely.

EMAs indicate that sentiment extremes are very ST (grn), while LT extremes (blu) are likely before a more significant pullback.

Bonds (TNX).  Bearish sentiment in bonds remains in a tight range. consistent with int rates.

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.

Last week warned of a bounce of as much as 10% off of the strong support level of 240 and last week saw a 6% rally.  The uptick in bearish sentiment could mean stronger gains, possibly due to Avi's Thur warning of drop in GDX to 21 (about the same as my LT goal of HUI 140 or less).

II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

Similar to the INT/LT Composite, this indicator shows sentiment much like the Jan-Feb 2020 period, but if as some are suggesting a Supercycle V top is near, sentiment could get more extreme.

And the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns) is showing that the market is losing much of its support from options hedging that buoyed prices the last six weeks.

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 Sept 3. Also, this week includes a look at the GDX for Dec exp.

With Fri close at SPX 4509, options OI for Mon is fairly large, most being OTM puts whuch may explain the jump in SKEW Fri to over 160.  There is a positive bias up to 4475 but the large # of calls at 4500+will likely cause a drop towards the 4475 level..

Tue (EOM) has somewhat larger call OI where SPX could be pressured down to the 4435-50 area.

Wed has smaller OI where SPX put support starts at 4450 and only minor call resistance exists up to 4525.  Early week declines may be reversed to ATH to start month.

For Fri strong call resistance at SPX 4500 and similar to Mon-Wed may see a reversal to the 4475 level.

IV. Technical / Other

This week I wanted to take a brief look at the INT/LT Combined Put-Call Revised indicator (Equity + ETF + SPX), as well as the ST/INT VIX Call indicator using options call FOMO formula (comparison to mrkt strength using NYDEC/NYADV).

The Combined P-C Revised spread is now showing greater low bearish extremes than seen before the Mar 2020 crash, indicating that an important INT/LT top is likely as early as Sept-Oct.

Looking at the VIX call indicator as a SM predictor of increased volatility using the FOMO comparison shows a somewhat positive bias, while the DM predictor SKEW has jumped back to highs in the 160s..

Conclusions.  Further upside is possible towards the SPX 4550-600 area is possible over the coming weeks, but gains are likely to be harder to come by.  Increasing divergences between INT/LT negative indicators and ST/INT neutral/positive indicators continue to increase the uncertainty of discerning ST market direction.

Weekly Trade Alert.  Possible limited weakness to start the week toward SPX 4450 before early Sept strength mid-week and a fade toward 4475 to end the week. Updates @mrktsignals.

Investment Diary,  Indicator Primer,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021 (in progress),
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

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Fall (Season) is Only a Month Away

Pricewise, last week's outlook was almost perfect as an early week pullback was expected that could reach the 4425 level (act 4437) before a rebound to new ATHs at 4475-85 (act 4480) and the begin a pullback to test the early month lows around 4370 (act 4368), and then rebound.  As has happened before, the algos seemed to drive the markets at hyperspeed, compressing a two week outlook into several days.

INT/LT indicators such as the Composite indicator, DM/SM indicator and SPX 2X ETFs are near levels seen at the Feb 2020 top, warning that a major pullback is near.  However, the VUX Buy&Sell components SKEW & VXV/VIX remain some distance from a Sell level, and ST/INT indicators remain moderately positive.  In conclusion, only a weak rally is expected, possibly to SPX 4550-600 or even a rounded top over the next few months.  It's very possible that weaker inflation may provide further impetus for more gains, but when the cause is recognized as an economic slow down or recession in 2022. a bear market will start.

I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. 1st is the SPX and ETF put-call indicators (30%), 2nd the SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility ratio of the ST SPX (VIX) to the ST VIX (VVIX) with the VXX $ volume.

The Composite bearish sentiment continued to fall last week, largely due to the SPX ETFs, and is now approaching the levels seen at the Feb 2020 top - an INT/LT top is nearing.

The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the VXX $ Vol/SPX Trend. Weights are 80%/20%.

The ST composite has now turned up, now matching levels seen at the May 2021 lows.

The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

This indicator remains moderately positive at levels seen after other ST pullbacks over the last year.

The EMAs remain little changed.

Bonds (TNX).  Bearish sentiment in bonds remains at low levels.

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.

Prices continued to fall last week reaching the lower range of the 240 to 260 support level.  As shown in the options OI update a 10% rally is possible ST, but LT I still think 140 or lower will be seen before a major bottom over the next two years.

II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

Like the INT/LT Composite the DM/SM indicator is following a very similar pattern to the Jan-Feb 2020 top.

And the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns) remains in a positive mode as hedging remains strong and likely contributed to the whipsaw behavior of last weeks pullback.

Taking a look at the ETF ratio of the INT term SPX INT (2X) ETFs (outlook 2 to 4 mns) as bearish sentiment, bearish sentiment hit a three year low in the prior week and likely contributed to the early week pullback.  Bearish levels remain at extremely low levels.

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 Aug 23. Also, this week includes a look at the GDX & TLT for Sept 17 exp.

With Fri close at SPX 4442, options OI for Mon is moderate with an overall high P/C.  Put support and call resistance are likely to keep prices between 4420 and 4460 with a positive bias.

Wed has somewhat smaller OI where SPX could make it to the 4475 level on a move over 4450, otherwise a range between 4425 to 4450 is expected.

For Fri strong call resistance at 4450 and over and low P/C will likely push SPX prices down to 4425 or lower.

For EOM very low current P/C and straddled puts and calls at SPX 4375 and 4400 and strong vall resistance around the 4450 level shows the potential of a retest of the recent lows, possibly to the 4350s.

Using the GDX as a gold miner proxy closing at 30.8, prices have pushed well into put support at 32 and 33 tat could mean a 10% rally is possible, but the extremely low overall P/C is very worrisome for the LT.

Currently the TLT is 150.5 with the TNX at 1.26%, but with call resistance near the current levels at 150 and moderate put support beginning just below current prices at 148 there is little indication of a sharp rise in rates or falling prices.

IV. Technical / Other

NA


Conclusions.  As mentioned last week the bears relying on "seasonality" to usher in a multi-month decline into Oct were likely to be disappointed as their views simply bolstered hedging activity, forcing a short-covering rally when the markets reached a ST bottom.  Sentiment is now showing ST/INT support for continued higher prices, while INT/LT indicators are showing that an important INT top is approaching, very possibly when the "seasonality" trade turns positive in Oct.

Weekly Trade Alert.  Next weeks outlook is uncertain with a probable range of SPX 4425-75 with a positive bias, athough Fri & EOM OI are currently showing excess bullishness that could result in a pullback to 4400 or lower.  Updates @mrktsignals.

Investment Diary,  Indicator Primer,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021 (in progress),
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

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Wearing Down the Bears

Last weeks outlook was for a mildly positive bias due to increased put buying and hedging although ST Composite was mildly negative.  Wed CPI was viewed as mildly positive as the overall number was unchanged at 5.0% and CPE fell to 4.5%, both annualized.  The result was a modest rally of about SPX 31 pts for the week.  The last three monthly optn exp (May-Jul) were the start of a modest pullback of 2-3% and this month looks likely to follow the same pattern.

The ST Composite is still slightly below neutral but it did not prevent the continuation of several rallies in stair-step fashion as discussed below.  Two of the INT/LT indicators (Composite and DM/SM) are showing similar patterns seen leading to the Feb 2020 top and could mean an INT top is only a few weeks ahead.  One INT indicator (VIX Buy & Sell) discussed in Tech/Other still shows that a lower Skew is likely before a top.

I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. 1st is the SPX and ETF put-call indicators (30%), 2nd the SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility ratio of the ST SPX (VIX) to the ST VIX (VVIX) with the VXX $ volume.

Bearish sentiment has rebounded the last several weeks since the July pullback and has now turned down similar to the move into the Feb 2020 top.

The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the VXX $ Vol/SPX Trend. Weights are 80%/20%.

The ST Composite remains below neutral, but as seen Jul-Aug and Nov 2020 markets can still rally in a stair-step fashion.

The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

With FOMO indicators at neutral, relatively strong hedging (below) is keeping this indicator in a modestly positive mode.

The ST EMAs indicate this pattern more clearly.

Bonds (TNX).  Bearish sentiment in bonds remains very weak as last weeks indications of a leveling off of inflation at the 5% annual rate and weak consumer confidence made bonds more attractive.

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.

Another successful retest of the 240-260 support level as the HUI retested the low of 250 last seen in March prior to the recent pickup in inflation, although ETF bearish sentiment remains at very low levels.

II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

Similar to the INT Composite, the hybrid DM/SM indicator showed a strong move downward last week similar to the move into the Feb 2020 top, indicating that an important INT top may be only weeks away.

And the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns) reached a weak Buy level mid-week similar to that seen at the late July lows as soaring put buying will likely support a final move into an important top.

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 Aug 20 monthly option exp.

With Fri close at SPX 4468, options OI for Mon is modest with surprisingly low P/C and a break below the 4460 call delta support level could fall as low as 4425.

Wed has somewhat smaller OI where SPX P/C increases to 164% and no call resistance until 4475 suggests that early week weakness will be quickly reversed..

For Fri low P/C and straddled positions below 4475 indicate a possible repeat of the last three monthly opt exp which started pullbacks in mid-May, Jun and July.  A pattern of alternation with June suggests a possible 2%+ pullback to the early Aug low around 4370 in late Aug.

IV. Technical / Other

This week I wanted to take a brief look at the VIX Buy&Sell components (SKEW and VXV/VIX). The last time I looked at these components was June 12 and the conclusion was the markets were similar to Aug 2018 and that an INT top was not likely until the component dif function had dropped to 0.0, ie, Skew and VIX/VXV sentiment were equal.  Below you can see that Skew has fallen (sentiment up) and VIX/VXV has risen (down), but a significant gap still remains.

Looking at the dif func compared to Aug 2018 and Jan 2021, the low Skew did not result in a correction until the dif func dropped to 0.0.

Conclusions.  The market's sole function at this point seems to be that of wearing down the bears. Current sentiment reminds me a lot of Aug-Sept 2018 when the call for a pullback into Oct due to negative "seasonality" kept the markets afloat into Oct when the call became one of positive "seasonality" and we all saw the result during Oct-Dec. This setup is looking very similar.

Weekly Trade Alert.  The last three monthly optn exp started a modest pullback and sentiment seems to support that outlook. SPX options OI indicates that a high mid-week around 4475-85 may be followed by a 2%+ pullback to about 4370 by EOM.  Updates @mrktsignals.

Investment Diary,  Indicator Primer,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021 (in progress),
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

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The Omega Market

The week started much as expected with some initial upside followed by a pullback to SPX 4375 before a move up to retest the ATHs at 4430-40 although the latter followed a more complex path than expected. With the SPX 4440 seen as a potential top by many EW analysts a pickup in put buying and hedging has increased support and reduced the risk of a sharp immediate selloff.

Many of the ST/INT sentiment indicators remain near neutral while the INT/LT indicators are showing resemblance to both the periods preceding the Sept-Oct 2018 and Feb 2020 tops. Wouldn't it be interesting if Sept-Oct 2021 was an INT top similar to 2018?

Spending way too much time with home buying, selling!

I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. 1st is the SPX and ETF put-call indicators (30%), 2nd the SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility ratio of the ST SPX (VIX) to the ST VIX (VVIX) with the VXX $ volume.

Bearish sentiment continued to climb for the week even as the SPX made new ATHs, now reaching the levels seen before the final rally to an INT high Feb 2020.

The ST Composite as a ST (1-4 week) indicator includes the NYSE volume ratio indicator (NYDNV/NYUPV & NYDNV/NYDEC) and the VXX $ Vol/SPX Trend. Weights are 80%/20%.

Sentiment fell to just below neutral at the end of week after a sharp decline at the start of the week which reversed as the SPX fell to 4375 Wed AM and bounced strongly.

The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%) and includes ST Composite (12%) and three options FOMO indicators using SPX (12%), ETF (12%), and Equity (12%) calls compared to the NY ADV/DEC issues (inverted). FOMO is shown when strong call volume is combined with strong NY ADV/DEC. See Investment Diary addition for full discussion.

Bearish sentiment was weak to start the week but rebounded to end above neutral

Sentiment is "nesting" near neutral resembling that seen in Mar 2021 which was followed by a six week rally.

CITI Surprise Inflation Index for July continued to show a sharp uptick and a strong CPI could put upward pressure on int rates.  Last week saw a double bottom in TNX at 1.13% and a close near 1.3%.

Bonds (TNX).  Bearish sentiment in bonds has declined close to the Sell level with the TNX chart now appearing as a slanted IHS with a two year projection of about 2.5%.

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.

The surprisingly strong jobs report lead to a rally in the US$ and a 2% pullback in gold with the PM stocks also correcting back to the top of the HUI 240-60 INT support zone.

II. Dumb Money/Smart Money Indicators

This is a new hybrid option/ETF Dumb Money/Smart Money Indicator as a INT/LT term (outlook 2-6 mns) bearish sentiment indicator. The use of ETFs increases the duration (term).

DM/SM indicator could follow the path of Sept-Oct 2018 and consolidate for a few weeks or see a retest of the sentiment lows with a blow off rally similar to Feb 2020.

And the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns) continues to be mildly supportive of higher prices with an uptick in hedging. 

Taking a look at the ETF ratio of the INT term SPX INT (2X) ETFs (outlook 2 to 4 mns) as bearish sentiment, the extended period of extreme lows is showing a combined event risk of a Mar 2020 selloff with greater longevity than the Oct-Dec 2018 selloff.

The INT term NDX ST 3x ETFs (outlook 2 to 4 mns) bearish sentiment is now at its lowest extreme since the near 100% vertical climb the first 6 mns of the covid crisis.  As seen on Fri selloff with ATHs in other markets and the interest rate sensitivity discussed last week, the NDX may be facing trouble if int rates begin a longer term climb.

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 Aug 13.

With Fri close at SPX 4437, options OI for Mon is very small and could be some delta hedging support at 4425 with only small upside call resistance.

Wed has similar OI where SPX has clearer call resistance at 4450+ and downside is unclear.

For Fri larger OI shows strong call resistance at 4425 and 4450 and put support at 4400 and 4375.  With CPI out on Wed, the reaction of the bond market will be important, especially to NDX,

IV. Technical / Other

I have been waiting for some change in the VIX Buy&Sell components - SKEW and VXV/VIX, but so far nothing to report.

Conclusions.   No major changes with sentiment this week as ST indicators remain near neutral, while an uptick in hedging may support prices early in the week.

Weekly Trade Alert.  SPX options OI is showing some indication of a pullback toward 4400 at the EOW, but will likely depend on the CPI release Wed AM and the reaction of bonds and NDX.  Updates @mrktsignals.

Investment Diary,  Indicator Primer,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021 (in progress),
 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