Last weeks pullback was much less than expected based on the SPX options OI
with only a drop to SPX 5050s while a drop to 5k or lower was expected. The EOM call resistance was largely ignored even though the increase in PCE was the same as the 0.1% for
CPI, but was considered expected. Friday's rally did occur on cue with Fed
head Waller hinting at a type of QE where the Fed starts buying T-bills directly
from the Treasury while still selling bonds, but the effects are somewhat
opaque. Essentially Treasury Sec Yellen wants to sell more ST T-bills (6
mn) rather than bonds, hoping that LT rates will drop. Currently, there is
20% bill/bond cap, so this allows her to sell more T-bills. For the Fed,
there is basically a 6-mn window offsetting QT, but after 6 mns when T-bills
mature, QT comes back. It sounds politically motivated to me by giving
financial markets a 6-mn breather before the election.
Trader Joe
this WE came out with the first EW prediction that I've seen where the SPX top
could be extended into late 2024 with a target around SPX 5400. In the DM/SM
section, I've also added a chart for the NDX 3x ETFs looking at the actual $
volume which shows much stronger FOMO volume at the Jan 2022 top than we are
seeing today. The narrow leadership of the Mag7 may effect results
somewhat, but techs look like they could still go higher.
Sentiment for the most part remains unchanged.
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 continues to consolidate below neutral.
Update Alt EMA. Bearish sentiment continues to consolidate below 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 rose to neutral.
Update EMA. Bearish sentiment rose toward 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 remains at the weak Sell level.
Bonds (TNX). Bearish sentiment remains at extreme lows.(TNX)
rate fell sharply Fri from the 200D SMA resistance to the 100D SMA support.
Below is the 50 SMA at 4.09%. A break above 4.35% is not expected until
May, assuming oil rises above $80/bbl.
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 fell as prices bounced off the 200 support area..
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 at the weak Sell level.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment fell slightly, 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 rose from the weak
Sell level.
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 remains below the week Sell level.
Taking a look at the SQQQ/TQQQ $ vol only shows some interesting behavior at the
Jan 2022 top, ie, a mad rush of FOMO volume (grn) which is missing so far.
Similar, although less striking behavior was seen for SPX ETFs.
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 fell from neutral, nearing the weak Sell.
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 Mar 8. 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 cros.
With Fri close at SPX 5137, options OI for Mon is moderate and could see some
downward pressure toward 5075-5100 by the close.
Wed has somewhat larger OI where SPX has call resistance at 5150 and little put
support until 5k and below. Unclear, but could see some negative bias.
For Fri stronger SPX OI shows stronger put support between 5000-5100 and could
mean a rally even if the jobs data is strong. SPX 5k-5100 is mostly
straddled and 5050-75 looks like a target for the close.
For Fri Mar 15 AM strong OI with very large straddle at 5k likely to attract
prices.
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
remained flat at
a weak Buy to + 1.25 SD, NQ (NDX) moved to a weak Sell at -1.0 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
2023
2022
Other Indicators
Conclusions. News from Ukraine is becoming more ominous and it
appears that a Russian victory/forced settlement could occur by this summer without major escalation by NATO (ground troops). Perhaps this will provide an
excuse for the long awaited correction. The question is who will pay for
rebuilding the war-torn cities, I doubt that Trump will be very supportive of US
participation.
Financial markets are overbought, but surprisingly appear to be much less so
than Jan 2022 as evidenced by the NDX 3x ETF $ volume shown in the DM/SM
section.
Weekly Trade Alert. The last two weeks both turned out to be "Sell
the rumor and buy the news" events with the Nvidia EPS and last weeks PCE, and
next weeks jobs data on Fri maybe the same as indicated by the SPX options OI.
Range perhaps, SPX 5025-5125. Updates @mrktsignals.
No comments:
Post a Comment