No Fall Rally in Sight

Continued weakness was expected in the SPX thru EOM down to 4000 which was exceeded handily to 3955, while a positive surprise for Fri jobs numbers was expected to push prices back to 4100.  The high Fri was actually SPX 4118, but an unexpected announcement by Gazprom mid-day that NordStream 1 would be shutdown for repairs sent EU futures markets down 4% and the SPX followed to new lows late in the day.  Since the EU just announced price controls to start on Russian imported oil and gas, there is a good chance that Russia is pressuring the EU to allow approval for Nordstream 2 due to "reliability issues" with NS1.  With the current hyperinflation in fuel cost in UK and EU, I would not be surprised if the EU caves in to Russia's demands.

The current decline has done little to improve sentiment to levels that would support a rally and may require a several week consolidation in the SPX 3800-4100 area similar to May before sentiment improves enough to support a sizable rally.  Such a consolidation would setup an irregular IHS on the SPX from a TA perspective.  The only immediate support is from the VIX call indicator (Tech/Other) which may mean lower volatility ST.

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 low with extreme lows remaining in options indicators, while ETF and volatility improved slightly.

Update Alt EMA sentiment improved, but remains negative.

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.  After a strong Sell at the Aug highs, sentiment improved. but remains below the Buy level as adv volume remains weak, and capitulation is only moderate.

Update EMA.  LT EMAs are only at neutral.  More downside or consolidation is likely before a rally.

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 well below the Buy level of the June lows and is unlikely to cupport a strong rally at this time.

Bonds (TNX).  Bearish sentiment in bonds improved slightly as rates did rise with the fall in bearish sentiment the previous week.

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.  LT sentiment seems to be taking hold as prices broke below the 200 support level and may have begun the expected journey to the low 100s by EOY 2022 or early 2023.  This may coincide with the INT lows/highs for the SPX.

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.  A sharp turnaround from low extremes was seen last week, but sentiment remains at the Sell level.

With the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns), very STsentiment has reached the Buy level, but longer sentiment remains below the levels of the May and June SPX lows, so more work to the downside is likely before a stronger bottom.

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, only a moderate improvement was seen.

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.  Sentiment improved slightly but remains below the May and June bottom 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 Sept 9. 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 3924, options OI for Tue is small, but there is moderate put support at current levels of SPX 3925.  A move back toward 4000 is possible.

Wed has small OI where SPX has weaker put support until 3850, so lower prices are possible.

For Fri strong put support up to 4000 indicates a rally back to that level by EOW is likely.

For Fri 16th optn exp strong up to SPX 4000 and no call resistance until 4100 indicates the potential for a push to 4050-4100 area.

IV. Technical / Other

After a double Sell in August, the VIX call Sell proved accurate with the Jackson Hole 100+ pt drop in the SPX.  Now the indicator has reached the strong Buy level similar to the June SPX lows, but lack of support from other ST indicators may result in more bottoming before a rally begins.

Conclusions.   The expected weakness into the Aug EOM proved correct, but sentiment has not improved enough to expect an immediate rally.  A 2-4 week consolidation between SPX 3800-4100 seems most likely.

Weekly Trade Alert.  Mon is not likely to see much follow thru to the downside, but mid-week weakness is possible.  A move to SPX 4000 by EOW is likely.  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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