Last weeks push higher to test the SPX 4900 level were mainly on the back of strong EP on Wed from MSFT (+2%) with continued growth in the AI platform and NFLX (+7%) with strong subscriber growth. The outlook was neutral with lower rates (TNX) and US $ supportive of higher stock prices. Next week is the important FOMC meeting and there is a good chance that hopes of news supporting a Mar rate cut will be disappointed with recent news of strong 2023 Q4 GDP growth at 3.3%, and core PCE inflation still high at 2.9%. Fri will also show the Jan jobs picture that may also show continued strength.
Sentiment has also corrected from the positive bias ST/INT from two weeks ago and is now neutral to negative. A trading range remains my expectations until later in the year although it looks more like a SPX 4700-4900 range. With Trumps GOP nomination all but assured, the election is taking more importance as there will likely be some major policy shakeups if Trump wins. If so, I view this as a potential analog to Nixon's 1968 election.
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 remains near a weak Sell.
Update Alt EMA. Bearish sentiment remains near a weak Sell.
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 retreated from a weak Buy to neutral.
Update EMA. Bearish sentiment moved down from neutral to just above a weak Sell.
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 continued to move down from neutral to a weak Sell as the Hedge Spread continued to fall.
Bonds (TNX). Bearish sentiment remains near the 2020 lows as rates consolidated around 4.1%.
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 continued to fall with ETF sentiment as prices remained near the recent lows.
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 declined slightly.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment continued to pullback but remains near 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 saw a slight uptick.
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 on the NDX push to 17.5k just shy of the strong Sell and may be repeating the pattern of late 2021.
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 went from neutral to the weak Sell 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 Feb 2. 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 4891, options OI for Mon is moderate with call resistance at 4900 and put support at 4850.
Wed FOMC day has large OI where SPX shows strong call resistance at 4875 and a negative bias to 4825-50. Expect some disappointment on news of future rate cuts.
For Fri moderate SPX OI shows little near term positions with another large OTM straddle at SPX 5000. A similar straddle on Fri 19AM saw a mid-week decline and late week rally.
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
increased slightly at + .5 SD,
NQ (NDX) decreased slightly to a strong Sell at -2.25 SD, YM (DJIA) remains a
weak Sell at -1.25 SD, Dow theory no longer supports DJIA.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. Last weeks range was only SPX 50 pts and occurred mostly on Wed as lower volatility was expected. Next week may be slightly more volatile with the FOMC Tue-Wed and payroll data Fri, but the lows may only be SPX 4825-50. As the year progresses more volatility may be seen as the war in Ukraine, Fed rate cuts, the Middle East conflict, and the election could all produce significant reactions in the market for stocks and bonds.
Weekly Trade Alert. Some weakness mid-week to SPX 4825-50 looks possible with late week uncertainty. Updates @mrktsignals.
Last weeks official target via SPX options OI was 4650-700, but I warned that a trio of ST indicators were showing Buys including the Hedge Spread at a strong Buy, the ST Composite at a weak Buy, and the Equity P/C (CPCE) at 1.55 and as a result, any pullback would be short-lived. As it turned out the markets started weak following the continued selloff in China, and Wed bottomed at 4715 for about 80 pts. In the afternoon news of a temp solution to the gov't budget impasse (thru Mar) was agreed on and furious short-covering ensued and continued thru optns exp Fri, pushing SPX, NDX and DJIA all to new ATH highs. DJTA remains about 8% below last July highs, possibly due to higher labor costs from strikes. Admittedly, this was a much stronger reaction than expected.
Unfortunately, I doubt that the volatility of the last three weeks will continue and sentiment measures are back to about neutral and a range of about 4750-4850 looks likely thru the EOM. Jan 29 is the next scheduled court date for China's Evergrande property developer for the settlement of their $300B debt, but after several months it seems to be going the way of the US budget talks, where each deadline gets rescheduled.
Last week I erred in the dates for the sentiment charts as I forgot to count 2023, INT/LT remains a Jan 2019 start, but ST/INT is July 2021,.
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 reversed from slightly positive to slightly negative.
Update Alt EMA. Bearish sentiment reversed from slightly positive to weak Sell.
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 remains above the weak Buy level.
Update EMA. Bearish sentiment for EMAs continues to lag, remaining near neutral, possibly due to the sharpness of the reversals.
The ST VIX calls and SPXADP indicator bearish sentiment reversed from slightly positive to slightly negative.
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 fell sharply due a decline in the Hedge Spread from a weak Buy to neutral.
Bonds (TNX). Bearish sentiment remains at the low extremes of 2020 although rates appear to have broken out of the 3.9-4.1% range since early Dec and may b forming an IHS similar to the US $.
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 remains near neutral although prices are down more that 10% the last couple of weeks as the outlook for Fed rate cuts has declined. LT, prices appear to be forming a triangle since early 2020, not sure what happens after.
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 was mostly unchanged.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment has reversed from the strong Buy last week all the way to neutral and questions the probability of a rally continuation.
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 decline 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.
Bearish sentiment reversed back toward the weak Sell level.
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 remains near 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 Jan 26 and EOM. 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 & TLT.
A new addition is added for OI $ amounts with breakeven pts (BE) where
call & put $ amounts cross.
With Fri close at SPX 4840, options OI for Mon is moderate with call resistance above 4750. Positive delta hedging may support prices over 4800. Some downside looks likely.
Wed has somewhat smaller OI where SPX strong call resistance moves up to 4900. Some downside looks likely.
For Fri stronger SPX OI with call resistance down to 4830 and partially hedged from 4750-800 indicates any downside likely limited to 4750-800.
For EOM Wed 31st, SPX has strong OI, but the convergence of puts and calls around the 4750-4800 area seems to indicate downward pressure, but only to 4750-4800.
Using the GDX as a gold miner proxy closing at 27.7 shows good put support at 27, but limited upside with call resistance from 29-30.
Currently the TLT is 94.1 with the TNX at 4.15%, options positions reflect the TLT/TBT ETF above where there is almost no put protection and prices could continue to fall back to the low 80s.
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 remains at + .5 SD, NQ (NDX) icreased to a stronger Sell at -2.5 SD, YM (DJIA)
remains a weak Sell at -1.25 SD, Dow theory no longer supports DJIA.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. At least I indicated a potential INT range for the SPX of 4650-4850, but I certainly did not expect to see it in one week. There is no guarantee that prices will not continue higher, but as mentioned last week, the rapid reversal of sentiment as seen in tis weeks sentiment, leads me to believe a trading range is more likely. One thing that would make me more bullish is weakness in int rates (TNX) and US $, but that doesn't look likely for now.
Weekly Trade Alert. Next week is pretty much a tossup, but a bias to the downside. Updates @mrktsignals.
Last week went about as well as could be expected. While most were expecting a
continued downtrend, based on SPX options OI, the contrarian position was that the the SPX
would rally from below 4700 to the 4775 level (for the close), and Friday's close was 4784,
although spike highs were seen above the Dec 4793 high with the Wed/Thur CPI/PPI reports,
topping Thru at 4802. The following declines after the spike highs were enough to
increase put support for next week, increasing any pullback target from the SPX 4625-75
level to 4650-700. Very high options P/C last Wed with the CPCE (Equity) at 1.55, the
3rd highest of the past 6 years, pushed the Hedge Spread indicator to a ST Buy, so any
pullback may be short-lived.
This week I am making some timeframe adjustments for the sentiment indicators using 4
years for the LT indicators (start Jan 2019) and two year for the INT/ST (Jan 2021).
One exception is the HUI which use three years. The shorter timeframes increase
readability.
This weeks Tech/Other section takes a look at the SPX Put/Call indicator. Based
on the extremely high volume (0DTE) and low P/C, I am beginning to think that this may
limit market moves in either direction. The result may be more of a rounded top as
seen in 2015 where the SPX remains in a range of about 4% from 4650-4850 for as long as
6-8 months.
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 increased to slightly above neutral.
Update Alt EMA. Bearish sentiment increased to slightly above neutral.
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 increased to a weak Buy.
Update EMA. Bearish sentiment increased, but remains near neutral.
The ST VIX calls and SPXADP indicator bearish sentiment moved back to neutral.
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 to a weak Buy with the help of a strong jump in the Hedge Spread.
Bonds (TNX). Bearish sentiment remains at the low extremes of late 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 overall moved to just above neutral with the ETF sentiment near a weak Buy.
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 rose above the weak Buy level.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment moved up sharply to the weak Buy level.
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 inched up toward the neutral line.
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 increased sharply from the strong Sell area to above the weak Sell with a strong pickup in ETF options sentiment.
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 moved from a weak Sell to above neutral with a strong pickup in ETF options sentiment.
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 19. 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. Todays charts were made a few minutes
before the close, so the SPX 4780 close is an estimate.
With Fri close at SPX 4784, Mon markets are closed for MLK Day.
Wed has small OI where SPX has strong resistance at 4800 and put support around 4650 with a likely range of 4700 to 4775.
For Fri AM SPX has strong OI with a very odd straddle at 5000 where most straddle are in the middle of a trading range such as 4700 and 4750. Upper resistance is 4800 and support is 4650, so a move to 4650-4700 is possible.3
For Fri PM strong SPX put support at 4700 and resistance at 4800 indicates a close over 4700 is likely.
For Wed EOM SPX has moderate OI where a close of 4750 or lower looks likely.
IV. Technical / Other
This week I want to take a brief look at the SPX Put-Call indicator (ratio in blue).
Since mid-2022 volume in SPX options has exploded (likely 0DTE effect) and about
twice the 2020-21 level. However, the P/C ratio has declined, indicating
less direction bias. One possible effect may be to place a price collar on
the SPX, thereby reducing overall options trading profitability. Since
mid-2022 the P/C range has been 1.3 (Buy) to 1.15 (Sell), so the current level
is a Sell.
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
declined slightly to neutral + .5 SD, NQ (NDX) remains a strong Sell at -2.25 SD, YM (DJIA)
remains a weak Sell at -1.25 SD, Dow theory
no longer supports DJIA.
Click dropdown list to select from the following options:
Tech / Other History
2023
2022
Other Indicators
Conclusions. Last week produced the expect strength, but the early rally and numerous failures around the SPX 4800 area increased bearish sentiment to the point where a strong decline below 4700 is less likely. With the seeming eagerness of ST options traders to jump in regardless of direction, this may limit moves in either direction. The extreme volumes in both puts and calls for the SPX could indicate a limited 3-4% range for several months.
Weekly Trade Alert. A continuation of the expected whipsaw from last week, this time downward still looks likely, but may struggle to reach SPX 4700. Updates @mrktsignals.
