A brief SPX rally early in the week pushed as high as 4029 with the Tue PPI release that fell to only 0.2% for Oct and bonds rallied as well with the TNX briefly falling to 3.7%. However, strong SPX call OI resistance at 4000 and signs of weakening retail sales from Target sent the SPX back to the 100D SMA support at 3910. As seen in the SPX options section, last weeks price action has neutralized (straddled) most of the call resistance between 3925 and 4000 for Nov 30 EOM, and a few more days of similar price action may create enough support to create a rally to SPX 4050-4110 late Nov-early Dec with jobs data Dec 2nd, PPI 9th and CPI 13th. FOMC is also Dec 13-14.
A lot of interesting news came out last week. In a discussion of inflation most of the improvement was seen in lower goods prices, while services/wages, which are more sticky, was up. Then Bullard's comments on Thur rattled the markets somewhat when he stated that using the Taylor rule implied a fed funds rate of 5-7%, and may have ended the bond rally. On Friday ZH published an article showing possible repercussions of financial sanctions as foreign CBs were large sellers of T-bonds, especially China and Japan - who have been buying oil from Russia. Finally, a letter from ExecSpec which aligns closely to my outlook for more upside into early Dec before a tough Q1 in 2023.
Tech/Other looks at several volatility measures including the VIX term structure, SKEW, and VIX call indicator and SPXADP for clues on market outlook.
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.
Increased bullishness in options plus lower bearishness in SPX ETF combined to produce a sharp drop in bearish sentiment. A sizable decline (10%+) is likely only weeks away.
Update. The extreme low UVXY $ Vol contributed to last weeks 100 pt SPX drop, but NY vol still positive leading to neutral sentiment similar to Aug 2022.
Update EMA. EMAs bouncing around just below neutral
Update EMA. Here a closeup shows similarities to Jul-Aug before sentiment produced a moderate Sell.
Update. Prices rose somewhat over the early 2018 range on USD weakness and may move sideways until sentiment falls.
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. Bearish sentiment continues to fall as the prospect of a "Fed pivot" becomes more deeply ingrained with better inflation news, but BTFDers fail to realize pivots only happen after something really bad happens.
Update. NDX ETF and ETF options sentiment are about at
the same level as Aug 2020 which was followed by a 10% decline in Sept.
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 25. A text overlay is used for extreme OI to improve readability, P/C is not changed. Also, this week includes a look at TLT & GDX for Dec exp. A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross and $ volume.
Markets are closed Thur for Turkey Day and early Fri. With Fri close at SPX 3965, options OI for Mon is moderate with put support a 3900 and call reesistance at 4000. OI & Vol $ indicate traders may be too bullish, so may trade around 3950.
For Wed Nov 30 EOM strong OI where last weeks early decline added put support from SPX 3900-4000 and continued similar price action may add enough support for a pop to the 4050 major resistance level.
Using the GDX as a gold miner proxy closing at 27.4 is now at major call resistance level and a drop down to 26 by mid-Dec is likely..
Currently the TLT is 99.6 with the TNX at 3.8%, and strong call resistance at 100 is likely to put a floor on rates near current levels.
IV. Technical / Other
This week I want to look at a couple of volatility indicators which remain the most bullish INT/LT indicators. First the VIX term structure (1 mn VIX/ 3Mn VXV). Typically INT bottoms occur when the VIX/VXV is 1.0 or higher and LT bottoms may reach 1.25. Tops INT/LT occur around 0.75-0.8. Currently the VIX TS is in the middle of the range with ST fear high relative to LT fear so a top is unlikely.
Combining the VIX TS with the SKEW gives a more representative picture of the sentiment strength as a high SKEW and low VIX TS gives a Sell, while as now when SKEW is low and VIX TS is high gives a Buy. Combined sentiment today is similar to the choppy periods of early 2018 and mid-late 2019.
Looking at the composite of the VIX call indicator (grn) and SPXADP (red) show the VIX call at the Sell level,,but is not confirmed by the SPXADP. This is similar to July where choppy behavior preceded a more significant top.
Looking at a closeup of the above shows a similar ST sideways sentiment pattern before a final move higher in SPX.
Conclusions. More upside for the SPX still appears likely before a larger correction. The increase in put support with last weeks volatility indicates that continued trading between SPX 3900-4000 next week may provide enough bearish sentiment for a push upwards into early-mid Dec. With jobs data Dec 2nd, PPI the 9th, CPI the 3th, and FOMC Dec 13-14, plenty of data-driven market movement is possible. The SPX 200D SMA is now 4067 and likely 4050 by EOM, is it a coincidence that major call resistance lies there?
Weekly Trade Alert. More range bound trading SPX 3900-4000+ is expected. 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
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic
Long term forecasts
© 2022 SentimentSignals.blogspot.com
No comments:
Post a Comment