Last weeks outlook for some early weakness followed by a rally into the Fri
jobs report worked out fairly well with a few twists. The SPX was overall
stronger expected as the low was only in the 5050s Tue and the high 5180s Fri AM
with a close at 5124 (expt range 5025-5125). The jobs report seemed to
support a Fed easing with an increase in unemployment to 3.9% from 3.7% even
though jobs were +275k since previous months were revised lower. However,
a momentum peak in techs/NDX may have been reached as NVDA opened up 4% (up 20%
the 1st week in Mar) then dropped 10% from the high into the close. Also,
the volume in TQQQ doubled as smart money began to bail.
More excitement is expected next week as the large SPX options straddle at 5k
is expected to put downward pressure on stocks. The SPX OI includes a
chart for CPI Tues showing a drop to/below 5050 is expected, while Wed has a
large put position at 5110 that may be taken out before a decline into Fri optn
exp. SPX OI is consistent with a move to/below SPX 5k thru EOM with FOMC
19-20th.
Overall, bearish sentiment is declining, but not indicative of an INT top.
So Mar-Apr lows is likely a BTFD oppty with earnings season late Apr.
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 declined modestly.
Update Alt EMA. Bearish sentiment mid-week reached the weak Sell VST (grn).
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 continued to consolidate below neutral.
Update EMA. Bearish sentiment remains just above a weak Sell.
The ST VIX calls and SPXADP indicator bearish sentiment fell to a weak Sell
and looks similar to late 2021.
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 moved firmly into the weak Sell area.
Bonds (TNX). Bearish sentiment now matches its 2021 lows with
TNX below its MAs after filling a gap at 4.05%.
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 reversed slightly with a strong rally off the 200
support area. Triangle resistance is near 240.
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 near a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment fell back below neutral Fri after a
mid-week bounce.
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 remains 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 continued to decline below the weak Sell level as ETF
options declined toward the Weak Sell and NDX ETFS were largely unchanged.
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 declined toward 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 Mar 15. 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 5124, options OI for Mon is moderate with put support at
5100 and 5125 and call resistance at 5150. SPX 5100-25 is likely.
CPI Tue has small OI where SPX has a 4k call position ay 5050 that is likely to
attract prices and only modest put support.
Wed has small OI where SPX has a large 5k put position at 5110 that is likely
to attract prices with straddles from 5050 to 5100.
For Fri AM strong OI and a very large straddle at 5000 and medium large at 5100
will likely anchor prices with a negative (call) bias targeting about 5025.
A similar setup for Apr 19 with current OI 70k at 5000 and 30k at 5100 so far
may indicate a trading range.
For Fri PM strong OI is slightly more negative with SPX 4950-5000 possible.
For Thur EOM/Good Fri Holiday strong SPX OI has a large straddle at 5k and a
large call position at 5015, so below 5015, possibly 4950-5000 is likely.
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 Neutral at -0.5 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. Next weeks inflation reports with CPI Tue and PPI Thur
may give some indication of whether the Jan uptick was just an anomaly.
CPI is expected to be up slightly overall with lower core MOM while down YOY as
higher Feb 2023 drops out. SPX options OI indicates that a disappointment
is likely. I have been watching oil as it tested $80/bbl twice last week
before falling back. Summer driving season, May-Sept, is likely to be the
real test.
Weekly Trade Alert. Some follow thru lower is expected with Tue CPI
to about SPX 5050, while Wed may bounce back above 5100 before down into EOW to
5025 or lower. Updates @mrktsignals.
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