Are the Bears Giving Up?

Somebody must have taken the title of my last post seriously about techs roaring back since the NDX rallied 5%, matching the early Dec highs at 12,170 with similar blowoff vol of 1.4B shares.  The next several weeks in Dec, however, the NDX fell 10%.  Meanwhile although I have been shouting that the consensus was too bearish with calls for an imminent recession, it looks like I was not bullish enough with targets for the SPX by EOM of 4030-50.  Apparently, many technicians have been focused on the declining tops TL since early 2022 that came n around SPX 4000, and the breakout sent the bears running for cover with a spike up to 4090.  I still think a multi-week decline of SPX 200+ pts is likely to start by early Feb.  Possibly, due to a still hawkish Fed on Wed and a strong jobs report on Fri.  Bond sentiment is indicating that int rates (TNX) should start rising soon.

I ran across an interesting chart showing a close correlation between the SPX and liquidity measured by a combination of the Fed's B/S, Treasury account and O/N reverse repos as shown in Tech/Other.

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.

Sentiment dropped last week, lead by the SPX ETFS and volatility, below the recent ST top.

Update Alt EMA.  Very ST EMAs are somewhat less extreme and may indicate a less volatile decline.

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.  Little change here, and the recent Sell is still in effect.

Update EMA.  The blip up shown in last weeks report proved prescient, but has now reversed.

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.   Bearish sentiment is reaching the pt where a multi-week decline in SPX is likely.

Bonds (TNX).  Bearish sentiment in bonds continues to inch lower and a multi-week rally in rates is expected soon.

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.  Sentiment is mostly unchanged.

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 hover near the recent lows, indicating that the recent breakout is unlikely to be the beginning of a new bull phase.

With the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns), after reaching extremely high bearish sentiment late Dec and early Jan, ST EMAs have dropped to levels of recent tops while LT EMAs are still modestly positive.

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), bearish sentiment fell modestly.

For the NDX combining the hybrid 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.

Update.  Sentiment continued to fall, but remains positive.

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 Feb 3. 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 4071, options OI for Mon is small and some downward pressure should be seen between 4000-50.

Tue (EOM) has somewhat larger OI where SPX has large OI, but fairly low $OI.  Call resistance extends down to 4000.

Wed has very small OI, surprising for a FOMC day, where SPX has little directional bias that may contribute to large swings.

For Fri strong call resistance shows at SPX 4050 and higher with mostly straddles down to 3900.  Nothing to prevent a large drop, but no reason to happen either.

IV. Technical / Other

Last week I ran across a chart at another site which bears (pun) mentioning. It was posted by a Fidelity Wealth Account manager and shows the SPX vs total liquidity ( Feds B/S - Treasury Gen Acct - O/N reverse repos). The chart speaks for itself. The author's (J.Trimmer) outlook for 2023 is for a sideways chop, similar to my own. I haven't had the time to research the data, but it is probably available at the NY Fed.

Conclusions.   Declines in bearish sentiment indicate that a top is expected soon and may have occurred last week ST.  However, INT sentiment indicates that a sharp decline is unlikely and that a rounded top may form and could stretch the expected correction into mid-Mar.  The spike high could raise the lows of a correction to the SPX 3850-3900 as I only see a 5-6% correction likely.

Weekly Trade Alert.  Not much guidance for next week as I was not bullish enough last week and a range of SPX 4000-50 seems 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

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Will Techs Swoon or Come Roaring Back?

Last week I warned of a possible SPX 200+ pt pullback over the next 2-4 weeks with the initial leg down probably reversing to new ST highs over 4000 by the EOM.  Wed was certainly a warning with a nearly 100 pt drop from the AM high on weaker the expected news on the economy, but Fri sharp rebound of 3% by the NDX helped to reverse much of the loss.  Over the past month I have been buying tech equipment for a future upgrade to Win 11 as prices have been beaten down similar to the stock prices.  With MSFT discontinuing support for Win 10 in Oct 2025, I wonder if many corporate IT managers may follow in my footsteps causing a  mini-meltup in the NDX in 2024.  This would certainly parallel the analogy made several weeks ago to the 1967 era.  I can attest to the upgrade in security (mainly UEFI) as I prefer customized lite windows and initially many of the shortcuts that worked in Windows 10 are no longer available.

INT/LT sentiment remains mostly unchanged, while ST sentiment reversed sharply, now supporting a potential move to higher ST prices above SPX 4020 by the EOM.

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.

Update, bearish sentiment remains low, but not extreme.  The result may be somewhat like the 2021 topping period.

Update Alt EMA, not much change.

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, last weeks extreme low bearish sentiment was expected to produce a 2-4 week pullback and Wed 100 pt SPX drop from the  high was a warning.

Update EMA, very ST a sharp uptick in bearish sentiment may lead to more gains.  A high around the EOM FOMC at SPX 4030-50 is possible.

The VIX call & SPXADP ST indicator remains vey low, so the reprieve from last weeks selloff is likely to be short-lived.

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, the temporary weak Sell has move back to neutral.

Bonds (TNX).  Bearish sentiment in bonds remains modestly negative as the 3.5% area continues to show strong support.

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, bearish sentiment has increased somewhat, probably due to the outlook for lower inflation.

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 hover around the Sell level.

With the sister options Hedge Spread bearish sentiment as a ST/INT indicator (outlook 1-3 mns), the very ST drop in bearish sentiment early in the week was somewhat reversed with the sharp drop Wed.

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), bearish sentiment continues to slowly improve, mainly due to less bullish options positions.

For the NDX combining the hybrid 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.

The sharp rally in the NDX based on good news from NFLX, may be indicative of a longer term trend as the MSFT upgrades to Windows 11 may spur investments in that area.

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 Jan 31. A text overlay is used for extreme OI to improve readability, P/C is not changed. Also, this week includes a look at the GDX for Dec exp.   A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 3973, options OI for Mon is small with no real put support until 3850 and some call resistance over 3950.  So a small pullback to 3950 or lower is likely.

Wed has smaller OI where SPX put support extends up to 3930 with very little call resistance until 4000.   A range of 3930-4000 is possible

For Fri stronger OI shows the current level is about neutral, so little net change is possible by EOW.

For Mon/Jan 31/EOM strong OI show little bias between SPX 3900 and 4050, so the 1st day of the FOMC could see some wild swings.

IV. Technical / Other - N/A


Conclusions.  Last weeks short pullback was certainly enough to get the bears growling again, and all the talk seems to be of when, not if, the economy enters into a recession.  Previously I indicated that a slowdown was expected to about 1% GDP growth as stimulus-lead growth leaks out of the economy, but a recession may not happen.  For stocks a trading range from lows of 3750-800 and highs of 4150-200 may be all we see for 2023, with the potential for a tech led blowoff in 2024 to test the SPX ATH.

Weekly Trade Alert.  Next week is likely to be somewhat boring with a potential range of SPX 3925-4000.  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

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The Big Thaw

Most of the analysts were very bearish for the beginning of 2023, expecting a repeat of 2022, and I am glad that I was not among them.  My expectations were for a rally into the Thur AM CPI release, but the overall strength was more than expected and the early weakness consisted mainly of a retracement of Mon gap open thru early Tue.  A target of SPX 3950-4000 was given for optn exp week due to the huge straddle at 4000 on the AM exp and the SPX is already there.  The bears may get a respite soon, however, as last weeks rally has moved the ST indicators to a strong Sell indicating that a sharp decline of SPX 200+ pts is likely over the next 2-4 weeks.  With the FOMC Jan 31/Feb 1, an initial decline after optn exp next week may be followed by another move over SPX 4000 at the FOMC before the real decline begins.

The Tech/Other section takes a look at two volatility indicators, the ST VIX calls & SPXADP plus the INT/LT VIX term structure (VIX/VXV) and SKEW.

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.  A small change in volatility and offsetting changes in SPX options and ETF sentiment resulted in little change in overall sentiment.

Update Alt EMA.  A slight decline in bearish sentiment ST and still at the warning level.

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   A sharp drop in bearish sentiment due to extreme low volume in UVXY have created a strong ST Sell.

Update EMA.  EMAs show that the low sentiment is persistent with levels now approaching that seen before the Sept 2022 decline.

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.  A sharp decline in bearish sentiment, mainly due to the rapid unwind of hedges shown by the hedge spread, leaves the ST risk very high.

Bonds (TNX).  Bearish sentiment in bonds is relatively unchanged as rates retraced most of their recent rise although the 3.5% support level seems to be holding.

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.  Several articles late week indicated that China has been a strong buyer of gold and is diversifying out of US bonds.  The rise in gold continues to follow the SSEC higher.

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 remains very low at about mid way from the high and lows of the past two weeks.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns),  bearish sentiment reversed sharply from the extreme hedging at the beginning of the year, indicating that much of the recent rally is due short covering as the hedges are unwound.

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, ETF sentiment remains high while options is very low keeping sentiment in a tight range.

For the NDX combining the hybrid 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.

Much of the hedging appeared to be in the NDX as many were expecting a further breakdown, while the double bottom around 11k seems to be holding.  Overall, sentiment remains high.

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 Jan 20. A text overlay is used for extreme OI to improve readability, P/C is not changed. Also, this week includes a look at the GDX for Dec exp.   A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 3999 options OI for Tue is small, but showing strong call resistance at 4000 and range of 3950-4000 is possible.

Wed has very small OI where SPX shows potential range of 3925 put support and 3975 call resistance.

For Fri AM strong OI with the huge straddle at SPX 4000 a potential target, leaving last weeks expected range of 3950-4000 still valid.

For Fri PM strong call resistance at SPX 4000 remains consistent with the AM target of 3950-4000 although lower is possible.

For Tue Jan 31/EOM strong OI shows a vacuum between put support at 3900 and call resistance at 4025, possibly due to the FOMC Tue/Wed.

IV. Technical / Other

This week I wanted to take a look at two of the volatility indicators.  The first is the VIX call & SPXADP indicator which shows a strong Sell due to very high VIX call buying and a low SPXADP.  Here, sentiment matches the ST volume/UVXY indicator, indicating that a sharp decline of 200+ SPX pts is expected in the next 2-4 weeks.

The INT/LT volatility indicator using the VIX term structure remains positive, however, so a ST decline is unlikely to be the beginning of a new bear market leg lower.

Conclusions.   I am sure that Jan has not started the way the bears expected as many continue to look at the future as a continuation of the near term past.  However, last week seemed to show enough capitulation by the bears as shown by the hedging measures to allow for a sharp decline in the SPX over the next few weeks, although LT is still expected to continue a positive bias.

Weekly Trade Alert.  Next week may prove to be a disappointment for all, as the price target of SPX 3950-4000 was given last week and still seems in effect.  Late Jan and early Feb are expected to show more volatility.  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