An Extended Range or More?

Last week was a big miss as continued "sticky" inflation was expected to result in a mild pullback to SPX 5150-5200.  PPI on Tue showed a strong jump to 0.5% MoM vs 0.2% expt, but the SPX remained in a tight range arount 5220 early but closed near 5240, while the TNX rose to about 4.45% early but declined throughout the day.  CPI on Wed was indeed sticky, but declined from 0.4% to 0.3% MoM and was less than the 0.4% expected.  Core CPI also declined from 3.8% to 3.6% YoY and markets reacted as if the Feds targets were in sight with TNX dropping all the way to 4.35% and the SPX jumped 80 pts to 5320.  TNX rose back to 4.42% by EOW as oil price rose back to $80/bbl and the SPX retreated but held 5300 at the close.  Notable was the DJIA reaching the 40K level.

Several ST/INT options related indicators have turned mildly bearish as the Hedge Spread has dropped to a weak Sell VST and the ST Composite is approaching a weak Sell.  The FOMO indicators of the ST/INT Composite have reached a strong Sell as call buying has reached a near term extreme.  Next weeks EPS report of NVDA could be an inflection, as pullback to fill the early May SPX gap of 5075-5100 is expected before a more important top in the June-July period.

On a lighter note Trumps "hush money" trial is expected to go to jury next week.  Does it matter?

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 moved from slighyly above to slightly below neutral.

Update Alt EMA. Bearish sentiment VST (grn) has moved to a weak Sell, reversing the weak Buy from the Apr low.

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 is somewhat less than at the Mar top, near the weak Sell.

Update EMA. Bearish sentiment reached the weak Sell VST (grn) on Wed and remains below neutral.

The ST VIX calls and SPXADP indicator bearish sentiment remains at the weak Sell level.

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 both the low Hedge Spread and FOMO (below) indicators have pushed VST (grn) sentiment to the strong Sell level.

FOMO Indicators only. Bearish sentiment has been skewed to the downside the last 1-2 years due to the high volume of 0DTE options. Low volume as a Buy has been more effective, but current high volume is at a Sell extreme

Bonds (TNX).  Bearish sentiment remains at low extremes.

For the INT outlook, 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 sharply to the weak Buy level as the HUI broke out over the 2022 highs.

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 sharply with the LT (blu) back to a weak Sell, while the VST (grn) is the lowest since the mid-2023 top.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment fell sharply as the VST (grn) has now moved from a strong Buy to a weak Sell.

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.

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 has reversed below neutral but above 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 fell but remains above a weak Sell.

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 near 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 May 24. A text overlay is used for extreme OI to improve readability, P/C is not changed. Also, this week includes a look at the GDX & TLT for June exp.   A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross.

With Fri close at SPX 5303, options OI for Mon is moderate with weak call resistance at 5300 and is stronger at 5325.  Put support is at 5200.  A close below 5300 is likely.

Wed has smaller OI where SPX has strong call resistance at 5300 and little put support.  Weakness in NVDA EPS could see a sizable decline.

For Fri stronger SPX OI put support should keep prices above 5250 with call resistance at 5300.

For Fri May 31 strong SPX OI is mostly straddled at 5100 and above where put support is at 5050 and call resistance at 5300 with a downward bias toward 5150.

Using the GDX as a gold miner proxy closing at 36.9 is above strong call resistance at 35.  Pos delta hedging will help higher prices above 35, but below 35, support is at 32.

Currently the TLT is 91.4 with the TNX at 4.42%, there is little directional bias between 90-93.

IV. Technical / Other

This week I wanted to take a brief look at the Combined Put-Call Revised indicator (Equity + ETF + SPX), .

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 remains below neutral at -0.25 SD, NQ (NDX) remains below neutral at -0.75 SD, YM (DJIA) moved to a weak Sell at -1.0 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.  Longer term bearish sentiment seems to be following the 2019 bullish market which was interrupted by several corrections rather than 2021-22 which was a continuous BTFD thanks to generous gov't handouts.  In the case of the former, the end was a blow off phase, while the latter was a trading range.  So far we haven't seen much of either with the result being a "hybrid" which means it could take much longer to top than many are expecting.  In any case, I am still looking for a ST pullback, possibly targeting the early May gap around SPX 5100 before a summer rally with a more significant pullback than Apr in Aug-Sept.

Weekly Trade Alert.  May only see mid SPX 5200s next week with a 5100 or lower target by mid-June.  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

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