Wishing All a Merry Christmas

Last weeks outlook was for possible early weakness and ending strength with an outlook for increased volatility.  Instead, the SPX started strong reaching the 4780 level before volatility kicked in Wed with a drop of SPX 80 pts the last two hours down to the SPX 4700 pivot area.  As the pivot area held, prices recovered to be up about .5% for the week.  The potential exists for another volatility event at the EOM on Fri with strong call resistance over 4700.

A number of INT indicators, including the hedge spread and the SPX and NDX ETF and options indicators, are pointing to the potential for a decline similar to Dec 2022 and Jul-Oct 2023 or about an 8-10% decline, likely 2024 Q1. The VIX call & SPXADP indicator has moved to the strong Sell.

The Tech/Other section includes an update for the DJIA constant dollar (inflation adj) which remains similar to the late 1960s chart shown 2022.12.24.  NDX futures has moved to a weak Sell.

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 from just below the weak Sell level to just above it.

Update Alt EMA. Bearish sentiment improved slightly from just below the weak Sell level to just above it.

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 saw a brief spike to start the week but ended just below the neutral level.

Update EMA. Bearish sentiment saw a brief spike to start the week but ended just below the neutral level.

The ST VIX calls and SPXADP indicator bearish sentiment moved from the weak Sell el to the Strong Sell level.

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 a addition for full discussion.

Update EMA. Bearish sentiment declined slightly.

Bonds (TNX).  Bearish sentiment continues to decline, and is now approaching the lowest level of mid-2020.

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 ETF sentiment is slightly above neutral and improving int rate sentiment may be helping prices.

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 improved somewhat and may be following early 2021 sentiment patterns.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment seems to be sticking at the weak Sell level with LT (blu) catching up.

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 continues to decline, but remains well short of the SPX July high levels.

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 is now at the lowest level of the past three years, is this a warning for the Jan earnings season?

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, but is approaching the levels of Dec 2022 and July 2023 which saw declines of 350 and 500 SPX pts.

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 Dec 29. A text overlay is used for extreme OI to improve readability, P/C is not changed.  A new addition was added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 4755, markets are closed  Mon.  Merry Christmas.

Wed has moderate OI where SPX has call support at 4740 and 4800 that may have a positive influence, but could be over shadowed by Fri call resistance.

For Fri EOM strong SPX OI shows call resistance down to 4725 and little net put support until the low 4600s.  The large call position at 4515 (JPM hedged fund?) may also have a negative influence.

IV. Technical / Other

This week I wanted to take a brief look at the inflation adjusted DJIA.  In Dec 2022 I showed the.inflation adjusted DJIA form the Feb 1966 as a potential analog for the current outlook (see Tech/Other 2022.12.24 link).  In the 1960s and 70s, Tthe DJIA topped several times at 1000 before inflation, but never reached the Feb 1966 ATH after inflation.  Although the DJIA has gone above the Jan 2022 constant dollar high at 37k, it remains below the inflation adjusted ATH, but does seem to be slightly stronger than the 1960s.

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 + .5 SD up from .0 SD, NQ (NDX) is at a weak Sell at -1.25 SD, YM (DJIA) is neutral at -.25 SD, Dow theory may support DJIA thru EOY.

Click dropdown list to select from the following options:

Tech / Other History
2023
   12.08 A look at the Feds recession indicator based on the unemployment rate using the Sahm Rule    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.  The markets seem to be forming a topping pattern that may take several weeks to complete.  The unexpected selloffs as we saw on Wed are likely institutions unloading large positions with decling volume.  This is likely to continue with the public buying the dips until there is a more obvious reason to sell.  The reason could be geopolitical (Ukraine gives up, M.East), but the timing looks like it could coincide with earnings season starting mid-Jan where Fedex's one day drop of 11% may be a preview.

Weekly Trade Alert.  Fri EOM shows the potential for more volatility, but EOQ window dressing may be an offset.  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

© 2023 SentimentSignals.blogspot.com