It's Time for Turkey

Last weeks outlook was for more of a trading range with possible lows near SPX 4650 and highs between 4710-30 with a slight pickup in ST volatility.  A surprising strength in bonds (lower rates) helped the NDX (esp AAPL) keeping the SPX above 4670 with weakness concentrated in the DJIA (esp BKX).  The actual high was 4718 or mid-target. 

ST sentiment remains near neutral with SPX options OI showing strong bearish bets before Turkey Day and bullish after, so you know the contrary play is to expect the opposite.

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.

INT/LT Composite sentiment remains firmly near the Sell level.

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%.

ST Composite sentiment remains near neutral and reminds me of Aug 2020 as do other indicators below, prior to the 10% decline in Sept.

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.

Here the ST/INT Composite seems to have bottomed and may also be similar to Aug 2020.

EMAs tell the same story.

Bonds (TNX).  Bearish sentiment in bonds actually is rising, even as rates decline.  As discussed last week, the outlook for slower growth and higher inflation has bond bears betting that inflation will win out, while investors are betting on slower growth.

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.

Similar to bond sentiment, gold bugs are betting on higher inflation, even as prices fell about 4% last week.

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).

The Dumb Money/Smart Money Indicator as a INT/LT sentiment remains near the lowest levels of the last three years.

And the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns) is another indicator that may be following the Aug 2020 pattern.  A moderate drop in SPX to 4600 or lower with an Xmas rally to follow could see a sharp drop in sentiment before a larger correction.

Taking a look at the ETF ratio of the INT term SPX INT (2X) ETFs (outlook 2 to 4 mns) as bearish sentiment, it has now fallen to the official Sell level following the strong Buy of Mar 2020.

The INT term NDX ST 3x ETFs (outlook 2 to 4 mns) bearish sentiment has not declined as much as the SPX and may mean higher prices before a larger 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 Nov 26.

With Fri close at SPX 4698, options OI for Mon is moderate with put support up to 4700 that could push prices toward 4725 with a reversal likely by the close toward 4710.

Wed has somewhat smaller OI where SPX could retrace back to 4700 with put support starting at 4680.

For Fri strong call resistance is likely to push closing SPX prices below 4700, possibly as low as 4675.

For EOM, Nov 30 strong put support appears at SPX 4600 and call resistance should push price to 4650 or lower.  The very low P/C currently is worrisome for the bulls.

IV. Technical / Other

This week I wanted to review the ST and LT NYSE Adv/Dec volume and take a look at AAPL.  First the LT volume is declining, but not near the Sell level.

ST, the Adv/Dec volume has fallen sharply to levels that generally see a ST pullback in SPX.

The ED was used as  warning before the Sept pullback and now APPL is near resistance again.  A modest pullback is likely before  "throw over" to cause capitulation by the bears.

Conclusions.  So far the INT outlook remains the same as a few days of range trading of SPX high 4600s to low 4700s is likely with a decline to 4600 or lower by early Dec followed by a final Xmas rally believe a more significant decline (15%+).

Weekly Trade Alert.  Upside target may be raised to SPX 4720-30 given the increase of bearish support for SPX options OI.  A pullback should start by late Fri with possible whipsaw the following Mon (CyberMon).  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

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