Troubles in Tech Spread to Blogger

The extreme low bearish levels of tech (NDX) sentiment has been a warning since early 2024, but the AI mania continued to support rising prices until last weeks EPS reports from overseas giants ASML (largest maker of semiconductor dies) and TSMC (largest semicondictor maker) forecast slower growth.  This on top of the Fed heads who seemed to finally get the message after the three "hot" CPI reports in a row and unanimously voiced doubts about near term rate cuts, which combined with continued ME problems, overpowered Wall Street bulls.  For the week the NDX was down almost 6%, the SPX 3%, while the DJIA was essentially flat with a 200 pt rally Fri even as the SPX was down 1% and the NDX 2%, which included a 10% drop in NVDA.  The good news was that the multi-week target of an SPX gap fill at 4980 was reached (act 4954), but momentum may prove as hard to stop on the downside as on the upside.

One of the more accurate EW analysts lately, Dr Shure, several weeks ago predicted an in NDX correction in Apr and is now looking for the SPX correction to continue into June with a low around 4600, then a final top early 2025.  The LT timing is similar to my outlook, but the low is somewhat more than I expect.  One thing to keep in mind is that during the 1998-2000 NDX bubble, the Fed also paused a rate hiking cycle for 6 mns late 1998, then resumed mid-1999; however, stocks continued to rally into Mar 2000 at the final rate hike.  So the ultimate surprise may again be stocks rallying based on a strong economy, even as rates rise. 

Overall sentiment remains mixed with the ST Composite and VIX Call & SPXADP indicating a ST bounce is likely.  INT/LT sentiment remains neutral to lower, but is likely to drop to the Sell level before an INT/LT decline.  The sentiment picture remains similar to mid-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 continues to remain below neutral.

Update Alt EMA. Bearish sentiment spiked lower early in the week before closing back to near 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 moved back above a weak Buy similar to the smaller Jan pullback.

Update EMA. Bearish sentiment VST remains near neutral.

The ST VIX calls and SPXADP indicator bearish sentiment moved to a strong Buy level which is usually followed by more bottoming before a turn.

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, INT view. Bearish sentiment rose then retreated back to neutral by EOW.

Bonds (TNX).  Bearish sentiment is hovering near the lows as rates remain around 4.6%.

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 for the ETFs continues to rise and may lend support to the miners.

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 continues to slowly rise above neutral.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment remains erratic from day-to-day, but reamins a positive bias.

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 near a weak Sell.

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 reamins at levels similar to the Jan 2022 top with extremely low NDX ETF 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 remains below 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 Apr 26 & 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 TLT & GDX for May exp.   A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 4967, options OI for Mon is moderate with some upside bias toward 5030 if prices rise over 4975, otherwise support is weak until 4900.

Wed options is OI very small where SPX 5025 is an important hurdle then 5100.

For Fri moderate SPX options OI has a large straddle at 5000 that may attract prices.

For EOM stronger SPX options OI support extends up to 5050 with the 5100 calls now resistance.

Using the GDX as a gold miner proxy closing at 34.1 has stronger call resistance at 34.5 & above with put support around 31.5.

Currently the TLT is 89.2 with the TNX at 4.6%, and strong put support should lead to a positive bias toward 92.

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 declined below neutral to -0.5 SD, NQ (NDX) declined below neutral to -0.5 SD, YM (DJIA) is a moderate Sell at -1.5 SD, Dow theory no longer supports DJIA.

Click dropdown list to select from the following options:

Tech / Other History
2024
   02.17 A potential analog to early 2007 with early Spring and Summer pullbacks before Fall rally.    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.  I had been expecting a 4-5% pullback in SPX in Apr-May before a rally into Jun-July EPS then an 8-10% decline late summer and a final rally into/thru the election.  However, the trifecta of ME conflict, Fed reverse pivot, and AI bubble bursting could dampen the strength of potential rallies thru the summer.  Sentiment also remains subdued given recent volatility.

Weekly Trade Alert.  SPX options OI indicates the potential for a rally to SPX 5000+ for next week and higher into EOM.  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

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