The sale of my house went well but was hectic as expected taking up much of my time the last few weeks which included finding a new home in a somewhat more rustic area at less than half the price. My outlook early Sept in my last post with the SPX at ATHs near 4540 was for a correction of 3-5% into late Sept - early Oct, and the bottom was the first week in Oct at -6%.
Surprisingly, the increase in bearish sentiment was fairly mild, especially in the options FOMO indicators and the SPX ETFs. For this reason, I see little support for some of the aggressive bullish targets of some in the SPX 4900+ range, but we may see limited ATHs of 4650 by the EOY. One of the reasons that I expected limited downside in Sept-Oct was the VIX Buy&Sell components (see Tech/Other), but recent changes indicte the next correction may be larger (10%+).
ST/INT indicators are showing that the current rally is running out of gas, and that a 50-60% retracement of the recent move from SPX 4270 (4350-80) is likely over the next two-three weeks. The trend since May had been a late-early month rally followed by an options exp week pullback which is usually accumulation (bullish INT), while the current trend maybe reversing with rallies into opt exp (distribution, bearish INT).
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 composite is showing very little increase in bearish sentiment with the recent SPX decline with a setup similar to the Feb 2020 top.
This component gave a strong Sell at the early Sept top, and a Buy somewhat early in the mid-Sept decline, and is now nearing another Sell.
This indicator also gave at strong Sell at the early Sept top and has since only shown a weak increase in bearish sentiment. Of note is the new low for the SPX FOMO component.
The EMA version shows that weakness is is expected ST.
The HUI briefly broke thru the 240 support level, but has since rallied to upper support. A more significant decline is likely to coincide with expected weakness in SPX starting early 2022.
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).
Only small increase in bearish sentiment on the recent pullback is a warning of more significant trouble ahead.
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 Oct 22 Also, this week includes a look at the GDX and TLT for Nov exp.
With Fri close at SPX 4470, options OI for Mon is small, but low P/C over 4400 indicates that a positive open could reverse by the close.
Using the GDX as a gold miner proxy closing at 32.5, put support at 32 and call resistance at 33 may limit movement.
Currently the TLT is 145 with the TNX at 1.58%, high P/C and no call resistance until 148 could mean some weakness in int rates and higher TLT prices.
IV. Technical / Other
During the Aug-early Sept on of the longer term sentiment measures whih did not seem to line up with the outlook of many for a 10%+ decline in the SPX was the VIX Buy&Sell component difference (SKEW and VIX term structure), but the recent trends have now reversed and now show increasing risk.
Another LT indicator, the NYSE ADV/DEC volume has not yet shown the MA drops below 1.5 seen prior to the declines since 2018, but may be following the 2007-08 pattern with a delayed dropoff.
Conclusions. .
Weekly Trade Alert. . 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
The sale of my house went well but was hectic as expected taking up much of my time the last few weeks which included finding a new home in a somewhat more rustic area at less than half the price. My outlook early Sept in my last post with the SPX at ATHs near 4540 was for a correction of 3-5% into late Sept - early Oct, and the bottom was the first week in Oct at -6%.
Surprisingly, the increase in bearish sentiment was fairly mild, especially in the options FOMO indicators and the SPX ETFs. For this reason, I see little support for some of the aggressive bullish targets of some in the SPX 4900+ range, but we may see limited ATHs of 4650 by the EOY. One of the reasons that I expected limited downside in Sept-Oct was the VIX Buy&Sell components (see Tech/Other), but recent changes indicte the next correction may be larger (10%+).
ST/INT indicators are showing that the current rally is running out of gas, and that a 50-60% retracement of the recent move from SPX 4270 (4350-80) is likely over the next two-three weeks. The trend since May had been a late-early month rally followed by an options exp week pullback which is usually accumulation (bullish INT), while the current trend maybe reversing with rallies into opt exp (distribution, bearish INT).
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 composite is showing very little increase in bearish sentiment with the recent SPX decline with a setup similar to the Feb 2020 top.
This component gave a strong Sell at the early Sept top, and a Buy somewhat early in the mid-Sept decline, and is now nearing another Sell.
This indicator also gave at strong Sell at the early Sept top and has since only shown a weak increase in bearish sentiment. Of note is the new low for the SPX FOMO component.
The EMA version shows that weakness is is expected ST.
The HUI briefly broke thru the 240 support level, but has since rallied to upper support. A more significant decline is likely to coincide with expected weakness in SPX starting early 2022.
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).
Only small increase in bearish sentiment on the recent pullback is a warning of more significant trouble ahead.
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 Oct 22 Also, this week includes a look at the GDX and TLT for Nov exp.
With Fri close at SPX 4470, options OI for Mon is small, but low P/C over 4400 indicates that a positive open could reverse by the close.
Using the GDX as a gold miner proxy closing at 32.5, put support at 32 and call resistance at 33 may limit movement.
Currently the TLT is 145 with the TNX at 1.58%, high P/C and no call resistance until 148 could mean some weakness in int rates and higher TLT prices.
IV. Technical / Other
During the Aug-early Sept on of the longer term sentiment measures whih did not seem to line up with the outlook of many for a 10%+ decline in the SPX was the VIX Buy&Sell component difference (SKEW and VIX term structure), but the recent trends have now reversed and now show increasing risk.
Another LT indicator, the NYSE ADV/DEC volume has not yet shown the MA drops below 1.5 seen prior to the declines since 2018, but may be following the 2007-08 pattern with a delayed dropoff.
Conclusions. The actions of the past few weeks were not totally unexpected as rampant bullish sentiment was warning that some negative surprises were ahead. The biggest surprise may be the lack of bearish sentiment that resulted from the somewhat larger decline than expected. For the past several months I have been looking for a pattern of rallies in optn expirations as a sign of distribution and last week may be that sign, and a continuation of this pattern in Nov and Dec may finally be a setup for a Sept-Oct 2018 type top. If so, we could start with a 15-18% decline in Q1 2022 (below SPX 4000) that could continue into the first half of 2023 and result in a 35-40% decline. I have a sneaky felling that the proximate cause could be trouble in the Dems party, either as a result of mid-term elections/Bidens health issues/or both.
Weekly Trade Alert. Some weakness and choppy trading is expected over the next 2-3 weeks, resulting in a 50-60% retrace of the move off recent lows of SPX 4280. 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
Glad to see your move went well Arthur. And stepping down to a smaller home is something I've thought about a lot lately as well. My house is too big for me and the woman in my life to keep maintained all the time. I'm in Ohio now but spent 25 years in Florida, and I'm thinking about moving back there at some point. But I think I'll try to time it out around the stock market bottom in the next year or so, and hopefully real estate prices will drop hard as well and I can get more for my money. My current home is paid off so I don't have to sell it, and I have a family member who I think would be happy to live it if I moved to Florida again.
ReplyDeleteAnyway, as for the market, another good call while you were gone. I was looking for a bigger correction but the bulls held the line down around 4270 three times and while I thought it would break on the fourth hit the bulls never let it happen. But this market is way overdue for a larger correction as 6% isn't cutting it in my opinion... at least not for another year long rally.
Can we make another new all time? Sure, but going forward from here shouldn't be as easy of a move up as the last year was. The monthly chart tells me it's tired. It's being a straight up move on it's technicals since the low last year but it's now appearing to flatten out, and while it's not rolling over yet it's clear that it will in the coming months ahead.
It supports your thoughts on much bigger decline starting next year and into 2023. And since we are getting close to the start of a bullish period, which is November and December, the odds are low now that the bears will break the 4270 lows on any pullback in the next week or two, which is my opinion, but it aligns with your thoughts of a 50-60% pullback over the next 2-3 weeks. It would basically be a move down to backtest a falling trendline that it broke out of last week. In conclusion, the rest this year looks like it will go higher but not straight up. A "two steps forward" and "one step back" pattern looks more likely to me.
Thank you for being back Arthur, always appreciate it, and also congratulations on your house.
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