No Pullbacks Allowed

Last weeks performance by SPX was somewhat stronger than expected as the C wave off 3810 extended above 4130 aided by moderating inflation and int rates (TNX).  Much of the Mar inflation drop can be attributed to the 20% drop in oil from around $80/bbl to 65 by mid-month esp PPI), but the recent cutbacks by OPEC have more than reversed that to $82/bbl.  Bearish sentiment in bonds (TBT/TLT) continues to drop and higher rates are ahead.  The only direct guidance for last week was for potential weakness Wed (CPI) and Fri (bank EPS) and both days started strong on "good news", but then saw a 50 pt drop in SPX before a late recovery.  So a 50/50 on the outlook.

This weeks ST/INT sentiment is showing a significant drop in bearish sentiiment that is more likely to support a move toward SPX 4000 by Fri.

The Tech/Other section takes a look at several LT volatility indicators that show similarity to the mid-2018 and mid-2019 periods that ended in blow-off rallies by the EOY, although I am still hoping for a more extended period of consolidation for SPX.  Most of the current strength in NDX seems to be "AI" related, while 2024 should be more "cybersecurity upgrade" related to Windows 11.

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 (40%), 2nd the SPX 2X ETF INT ratio (30%), 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.  This week breaks SPX options into volume adj (1/B-A) and traditional spread (A-B).

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.  Bearish sentiment fell last week, nearing the levels of the Dec 2022 highs.  Note the similar range in sentiment to mid-2019 before the blowoff top into 2020.

Update Alt EMA.  Bearish sentiment fell last week,similar to the Dec 2022 highs.  Note the similar range in sentiment to mid-2019 before the blowoff top into 2020.  A ST top is likely soon.

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 remains near the weak Sell, so any pullback is not likely to exceed SPX 4000.

Update EMA.  Very ST (grn, red) shows a weak Sell, some weakness is expected next week.

Strong buying of VIX calls may mean a sharp drop for 1-3 days.

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 drop in hedging has pushed this sentiment indicator very close to the ST weak Sell level.

Bonds (TNX).  Bearish sentiment in bonds continues to drop sharply as many seem to be expecting lower rates or a recession.  The last time sentiment was this low the TNX was at 1.5% and rates rose over 3% before generating a Buy.  Does this mean we may see 6% in the next few years? 

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.  Gold may be having problems with $2000/oz, but HUI buying is strong, driving sentiment to the level of the early 2021 top.

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 seems to following a higher lows and highs pattern similar to mid-2019 and is currently near the Sell level of the last two ST tops.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment has dropped back toward neutral.

A new composite SPX options indicator uses both the volume adj (1/B-A) and P/C equivalent spread (A-B) to compensate for the discrepancy between the two.  This replaces the old SPX options indicator for the SPX ETFs + options below and the INT/LT composite.  No chart.

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 has dropped below neutral.

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.

Sentiment remains near the weak Buy level.

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 Apr 21. 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 4138, options OI for Mon is very small with call resistance at 4150 and higher and only minor put support until 4050.

Wed OI is very small with minor call resistance at SPX 4125 and 4150 and minor put support at 4000.

For Fri AM strong OI and a large straddle at SPX 4000 may pressure dealers to sell down to that level with net call resistance starting at 4075 and put support below 4000.

For Fri PM moderate OI with a downward bias to SPX call resistance at 4075 and put support at 4050.  Last week increased out support at 4050 and 4100, so an AM move down to 4000-25 is likely to close higher between 4050-75.

For Fri Apr 28 EOM moderate OI indicates call resistance at SPX 4125 and higher and put support from 4050 and lower.  Likely range 4050-4125.

IV. Technical / Other

Combining two LT volatility indicators, the SKEW (OTM premiums) and VIX term structure (1/3 mn VIX), shows very similar consolidation patterns to mid-2018 and mid-2019 (0 to +2SD).  Both times ended with a blow off top and a move in the LT indicator to -1.5 SD before a top. 

Looking at two VIX indicators, VIX term structure (1/3 mn VIX) + volatility index (VIX/VVIX volatility) shows a similar pattern, although more like 2018.  Lower readings of about -1.5 SD are likely for both before an important top.

A ST/LT version combining the BPSPX & SPXADP (ST, grn) with VIX term structure + volatility index (LT, red) may prove useful and is in testing.  Here, the strong Buy at the June 2022 lows indicates the rally has more to go INT.

Conclusions.  It was only a month ago that I gave a Buy indicating that a 10%+ rally was likely by mid-late June and last week almost reached the minimum (SPX 4180) in a single month.  At the time I indicated that the SVB crisis and subsequent bailout was more likely to be a "risk on" event similar to the 1998 LTCM crisis while most were predicting a 2008-09 collapse.  Now some may feel we are approaching top since a rally to SPX 4200-300 was expected for an important EW top, but the volatility measures as LT indicators in the Tech/Other section show that more surprises to the upside may be in store.  I still think the int rates (TNX) will be an important factor and bond sentiment does not look good, but the timing is uncertain.

Weekly Trade Alert.  ST/INT sentiment and Oi are now both showing the potential for a ST drop to the SPX 4000-25 level by Fri AM, but it could be quickly reversed.  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

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