Did Santa Come Early This Year?

Prices continued to push higher last week even though some ST sentiment and options Oi indicated a possible pullback, with the SPX closing over 4400 at 4415.  Probably the most important development was the continued drop in oil prices into the $75-80/bbl range.  Several weeks ago, I mentioned the dependence of stock prices on int rates (TNX), while int rates were dependent in the ST on oil prices.  Now a drop in oil to $75-80/bbl means lower inflation pressures for the next few months and will help a continued stock advance.  Next Tue is the CPI report which is expected to drop from 3.7% to 3.3% YOY while the core rate is expected to remain near 4%.  The core rate is effected heavily by shelter (rent) cost which some argue with its relevance since it is lagged, but since most rentals are 1 year leases and prices only go into effect at the lease-end, the 12 month MA seems appropriate.

Surprisingly sentiment has actually improved over the last two weeks as the rally is not seen as sustainable, and bearish sentiment has increased with the ST composite now at a weak Buy and the Hedge Spread is near a strong Buy.  I was expecting weakness thru the EOY based on the int rate outlook (TBT/TLT), but the drop in oil prices will likely offset the negative effects ST.  Do not be surprised if we don't see a gap fill at SPX 4600 by Dec/Jan.

I. Sentiment Indicators

The INT/LT Composite indicator (outlook 3 to 6+ months) has three separate components. Starting Aug 26, 2023 SPX options are removed due to extreme 0DTE volume distortions. New weights are ETF put-call indicator (30%), SPX 2X ETF INT ratio (40%), and 3rd a volatility indicator (30%) which combines the options volatility spread of the ST SPX (VIX) to the ST VIX (VVIX) with the UVXY $ volume.

Update Alt. Bearish sentiment improved slightly, but remains near neutral.

Update Alt EMA. Bearish sentiment improved slightly.

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. Bearish sentiment improved from neutral to near a weak Buy.

Update EMA. Bearish sentiment (ST, grn) improved from near a weak Sell to near a strong Buy, and likely means a positive options exp week ahead.

The ST VIX calls and SPXADP indicator bearish sentiment increased to more bearish, but remains near a week Sell.  This may mean a short but sharp pullback ahead, possibly after Thanksgiving if Black Friday sales are weak.

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 increased from a weak Sell to a weak Buy with a sharp turnaround in hedging.

Bonds (TNX).  Bearish sentiment remains near a strong Sell as the expected range of 4.5-5.0% continues to hold.

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 declined to below neutral even as prices fell 8% last week.

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 fell further below neutral, but prices could continue to rally as seen for all of 2021.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment rose sharoly to near a strong Buy after last weeks neutral reading. 

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 continued to rise aided by options sentiment.

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.

Bearish sentiment fell sharply as ETF options and NDX ETF sentiment both dropped and may indicates some weakness ahead, possibly from disappointing Black Friday sales.

For the SPX combining the hybrid ETF options plus SPX 2X ETF (outlook 2 to 4 mns) produces an indicator where, in this case, ETF options are a proxy for the SPY options.

Bearish sentiment for SPX is more bullish than for NDX and remains above neutral.

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 17. 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 4415, options OI for Mon is moderate with call resistance at & over 4400, but may not be enough to counter momentum and put support is around 4325.

Wed has very small OI where SPX has callr resistance over 4375 and put support.at 4300

For Fri opt exp AM strong call resistance at SPX 4450 will likely stop any rally and lesser resistance at 4400 may push prices down to that level..

For Fri opt exp PM moderate SPX OI shows a potential target of 4350-4400 if 4400 is broken.

IV. Technical / Other

The following uses barcharts.com as a source and discusses S&P futures (ES) as a third venue of stock sentiment in addition to options and ETFs.  The non-commercial/commercial spread represents a LT bearish sentiment (dumb money/smart money) indicator. As explained in investopedia, commercial investors (red) are institutions and are smart money, while non-commercials (green) are speculators such as hedge funds and are dumb money. Here is the current  barchart graph for the S&P 500 (top) and trader positions (1st bot) with positives as net longs and negatives as net shorts.  Bearish sentiment is represented by the spread and is positive if red > green (Buy) and negative if green > red (Sell).  ES (SPX) sentiment is neutral at + 0 SD, NQ (NDX) is Neuttral at +0 SD, YM (DJIA) is a strong Buy at +2.5 SD, Dow theory may support DJIA thru EOY.

Click dropdown list to select from the following options:

Tech / Other History
2023
   10.21 A comparison of 5 year periods (1960s, 90s & today) for inflation and int rates (Fed funds & TNX)    09.29 A ST trend for TNX, INT/LT COT bearish for bond futures (TN), LT 20/30 yld curve    09.22 A look at Dow Theory and a DJIA diagonal and possible similarities to late 2015    09.15 Use of Brave browser Shield for enhanced internet access to some sites    07.22 A closer look at the 1966-74 markets indicate marginal new ATHs likely around 2024 Pres election    07.08 TNX since 2020 shows bounce likely temp w/ more back&fill before rounded bottom completes    07.01 Sentiment for BKX is at warning levels, Barcharts ES sentiment is now neutral.    06.24 Another update to VIX call indicator using VIX P/C; how volatility (VIX) effects options pricing    06.17 OTDE Volume & Put/Call Ratio Drilldown - low volatility (VIX) ahead    06.10 Volatility indicators warning of a nearing top    05.20 A review of indicators that performed well in 2015s rounded top    05.13 Comparing the VIX term structure (VIX/VXV) and volatility ratio (VIX/VVIX)    05.06 A review of the current int rates (TNX), unemployment and CPI compared to the 1960s    04.29 Addressing the negative M2 growth misconception, adding Barcharts ES outlook    04.15 Several LT/INT indicators show INT gains likely (SKEW&VIX/VXV,VIX/VVIX,BPSPX&SPXADP)    03.25 Comparison of PCE inflation and TNX rates to late 1990s indicates possible tech meltup    03.18 Strong SPX volume at Mar optn exp supports Spring rally of 10%+    03.11 Low SPX P/C ratio indicates likely trading range    03.04 LT T-bonds (10/20yr) => more Fed tightening, LT NYSE Adv/Dec volume => possible ATH retest    01.28 SPX correlation w/liquidity, Fed bal sheet - Treasury Gen Acct - O/N reverse repo    01.14 Volatility indicators, ST VIX calls indicate pullback SPX 200 pts, INT/LT SKEW & VIX/VXV still bullish    01.07 Gold performance relative to int rates (TNX), and China stock market (SSEC)
2022
   12.24 Late 1960s analog, TNX,Unempl & CPI => Recession 2024-25, DJIA top Feb'66 retest late '69    12.17 A contrarian view to the consensus 2022H2 recession & bear narket low of SPX 3000    12.10 Yield curve inversion (since 1980) not perfect recess indicator compared to inflationary 1960-80    11.26 Sentiment indicators showing a sharp drop late Dec as a setup for a strong Spring rally    11.19 Sentiment indicators showing choppy move higher likely before pullback    11.05 Using the SPXADP with the VIX call only indicator improves effectiveness

Other Indicators
   U.S. 10 Year Treasury Note (TNX Rate), Futures, Extended Hours    Marketwatch Economic Release Calendar    INT/LT Rydex 3x Bear/Bull Fund Ratio    INT/LT NYSE Up/Down Volume 100 & 200 DMAs    S&P 500 Historical Charts with Inflation Adjustment    DJIA 100 Year Historical Charts with Inflation Adjustment

Conclusions.   Everyone is talking about the Zweig breadth thrust of the last two weeks as a bullish indicator and combined with the sentiment outlook it is likely that the INT low expected in late 2023 around SPX 4150 was seen at the Oct lows at 4100 as lower oil prices have reduced the ST outlook for higher int rates.

Weekly Trade Alert.  A strong start to the week looks likely to about SPX 4450, but a pullback to 4400 or lower is indicated by EOW using the SPX options OI.  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

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