Good News or Bad News

Last weeks outlook was mostly a hit with an Aug trading range expected from SPX 3950ish to 4150.  There were more gyrations early in the week with weak economic numbers and a decline to SPX 4080 before a rebound to a high of 4170 midweek, while TNX rates fell to the targeted 2.5% level before rebounding sharply on the strong jobs report.  Personally, I was surprised at how well the SPX held up Fri, but traders seemed to focused on buying the industrials and ignoring the possible reversal of the "Fed pivot" to lower rates.

No major changes in sentiment as ST indicators continue to support a 2-4 week pullback to the low to mid 3900s.  With the 50 day SMA rising to 3950, this may provide some support.  Currently options OI shows the greatest risk options exp week of Fri Aug 19th.

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 UVXY $ volume.

Update Alt. In this case the wts for the SPX 2X ETF ratio (SDS/SSO) and SPX puts & calls spread are adj to equal as in the DM/SM section for SPX ETFs.  Overall sentiment remains near neutral similar to the June SPX top with ETF sentiment continuing to decline as options rises.

Update Alt EMA.  Now about the same as the June SPX top.

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

Update.  Sentiment rose slightly but still similar to the June SPX top.

Update EMA.  Same as above.

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.

Update EMA.  Sentiment is little changed and remains below neutral.

CITI Surprise Inflation Index for Aug, I haven't reported this for a few months as "surprises" are hard to define and don't show a high correlation with "actual", but with CPI and PPI out next Wed/Thur it does not look like there will be any negative surprises (lower infl).

Bonds (TNX).  Bearish sentiment in bonds remains modestly positive but has fluctuated wildly with last week reaching the second pullback target at TNX 2.5 early then rebounding back over 2.8% with Fri jobs report.

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.

Update.  Overall sentiment seems to be leveling out near 0, with prices apparently keying on the US $.

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).

Update.  Sentiment continues to decline and remains the strongest agrument for the current rally as a "bear market" rally with new lows ahead likely late 2022 or early 2023.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment remains modestly positive although well off the levels of the May and June SPX lows and remains supportive of higher prices.

For the SPX, I am switching to hybrid 2X ETFs plus SPX options. Taking a look at the INT term composite (outlook 2 to 4 mns) as bearish sentiment, it has declined to levels that supported declines this year.

For the NDX combining the hybird ETF options plus NDX 3X ETF sentiment with the interest rate effect,  (outlook 2 to 4 mns) bearish sentiment shows similar extremes between ETF and options as in late 2020 which resulted in a choppy market until options sentiment rose.  Note QQQ options are optimal, but are N/A and are included in ETF options.  ETF sentiment has declined somewhat. but overall sentimnet remains high due to ETF options support.

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 12. A text overlay is used for extreme OI to improve readability, P/C is not changed. A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 4145, options OI for Mon is very small with SPX rallying past put support at 4100 with 4175+ the main area of call resistance.

Wed has smaller OI where SPX has minor support at 4050 and resistance at 4150.

For Fri strong resistance shows up at SPX 4150 while put support drops to 4025.

For optn exp Fri moderate call resistance exists above SPX 4050, so there may be a suprise optn exp week decline.

IV. Technical / Other - N/A


Conclusions.   There is no clear indication of an imminent decline and it is possible that the month of Aug becomes a rolling decline between SPX 3950-4150+.  The biggest risk appears to be optn exp week of Fri 19th Aug with a potential target of SPX 4000-4050.

Weekly Trade Alert.  Early next week could see a rally back to the SPX 4170s, but should decline to 4100 or lower by EOW.  Updates @mrktsignals.

Investment Diary,  Indicator Primer, Tech/Other Refs,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021,
 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
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