Where Have All the Bears Gone?

Last week was very interesting as the SPX options OI showed extreme optimism for the Wed FOMC with call positions targeting 4825-50.  After a Mon rally in stocks and bonds which seemed to be the result of the US Treasury announcing slightly lower refunding for 2024 Q1, the SPX fell hard late Tue and Wed with Powell's about face about future rate cuts.  As pointed out in the OI section a large straddle at SPX 5000 was almost identical to Feb 19 which saw a mid-week decline followed by a strong rally, and the result was the same this time courtesy of META and AMZN EPS.  Definitely something to watch for in the future.  Fri jobs data was probably known by Powell on Wed and may have been behind his decision, but it certainly shocked the bond market.  My outlook for the last 18 mns has been that jobs would continue to be strong, preventing a recession and finally causing the Fed to resume tightening when inflationary pressures resume (possibly 2024H2).

Last weeks title regarding stocks at a permanently high plateau was from the infamous quote from the Yale economist, Irving Fisher, early Oct 1929, who went on to saw that he never expected more than a 15% correction in stocks the rest of his lifetime.  Did he ever get a surprise.  Today's sentiment seems very similar as ir's almost impossible to find anyone who is bearish.  One of the biggest "perma bears", the Northman Trader is now looking for SPX 5400 after remaining bearish for more than a decade after the housing crisis.

This weeks Tech/Other section takes a look at the INT and LT NYSE Adv/Dec volume charts.  The last update was Mar 2023 when the SPX was at 4050 and I used it to project a move to ATHs while everyone else was looking for the big "c-wave down".  The question now is does it mean a top is near, this is one of the main reasons I am very cautious at this point.

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 rose slightly above 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 fell below neutral.

Update EMA. Bearish sentiment fell below a weak Sell then rebounded.

The ST VIX calls and SPXADP indicator bearish sentiment remains near 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 remains below neutral, but above a weak Sell.

Bonds (TNX).  Bearish sentiment remains near low extremes as rates retraced about 80% of the Jan rise in one week, then retraced almost half the fall on Fri.  Any sign of higher inflation could lead to panic bond selling.

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 modestly negative as prices trade in a narrow range.  LT sentiment favors a breakdown of the triangle to test the 2021 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 remains slightly below neutral with little change.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment improved from slightly below neutral to 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 improvement 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 looks like a duplicate of that seen at the Jan 2023 top with a retest of a strong Sell, but more whipsaws or range trading may be needed for a final top.

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 reached the lows of the July 2023 top and rebounded.

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 9. 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 4959, options OI for Mon is moderate with strong put support below 4900 and moderate call resistance from 4750 to 5000.  Possible decline to 4925 or lower.

Wed has somewhat smaller OI where SPX call resistance extends down to 4900 and continued decline to 4850-4900 is possible.

For Fri moderate SPX OI with call resistance down to 4825, but the straddle at 4900 may keep closing prices at 4850 or higher.

IV. Technical / Other

I haven't reviewed the INT and LT NYSE ADV/DEC volume charts since Mar 4, 2023 (see other links below).  At the time I used the volume MAs to project a retest of the ATHs in the SPX 4800s when the SPX was still at 4050 and everyone else was looking for a continuation of the downtrend to SPX 3000 or lower.  The Jan 2023 SPX high fell short of its prior Adv/Dec volume surge which lead me to target a recent top of SPX 4850, but at 4950+ we are at the mid-2020 Adv/Dev volume highs.  Current volume MAs look more like late 2019 than late 2022, but in any case, a near term INT top does not look likely.

Using the LT chart back to 2008, it looks like a target may be likely around SPX 5000, but the question remains as to whether the target will become a top.

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 at a weak Buy + 1.0 SD, NQ (NDX) is a strong Sell at -2.25 SD, YM (DJIA) is a weak Sell at -1.5 SD, Dow theory no longer supports DJIA.

Click dropdown list to select from the following options:

Tech / Other History
2024
   01.13 A look at LT SPX P&C, very high volume may compress range to 4650-4850 for mns, current Sell.
2023
   12.23 A quick update to the DJIA infl adj comparison presented as a possible analog Dec 2022    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    ES (S&P 500), Futures, Extended Hours +    NDX (NASDAQ 100), 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 seemingly universal capitulation of the bears still does not show up in the INT/LT sentiment, hence the call for more of a trading range thru 2024 rather than a 10% blow off to a high which was seen in the INT highs of the past several years.  However, it does feel like the last half of 1999 when I got out too early.  Next week we have about 10 speeches by various Fed heads.  The last few weeks they have been trying to talk back the "rate cut" exuberance following Powell's Dec comments and continued hawkishness is likely to result in a retest of this weeks lows at SPX 4825-50.  Possibly just in time to set up a rally into Feb optns exp Fri 16th.

Weekly Trade Alert.  Continued Fed hawkishness next week will likely mean US $ strength and lower stocks & bonds.  SPX may retest the 4825-50 area.  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

© 2024 SentimentSignals.blogspot.com