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.
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