At least I was not bearish last week. The CPI was expected to moderate
due to lower oil prices and the FOMC was expected to leave rates unchanged, but
the big surprise was that CPI was unchanged MoM due to a 3.6% drop in gas prices
with many items unchanged. That was good enough for an SPX 100+ pt romp
above 5400 even with a "hawkish" FOMC. Surprisingly ST sentiment became
more positive which could mean more gains ahead. Similar to mid-2015, the
DJIA appears to have topped in May, while the NDX keeps powering ahead; the main
difference is that SPX is more positive. A look at the QQQ (NDX/40)
options OI for next Fri shows that more gains are possible into options exp.
The biggest change in sentiment last week was the 3rd & 4th lowest ETF P/C
since 2014 with ETF calls over 2M on Wed & Thur, or 4x daily avg.
Historically, this has not been particularly relevant for the very ST vs the
extremely high P/C, but for the INT it does show frothiness is building.
As a solution for the downward bias in EMAs for the UVXY $ Vol/SPX Trend, the
SPX trend is omitted going forward for EMAs. COT shows a slight
improvement in sentiment for DJIA, SPX and NDX.
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, INT view. Bearish sentiment declined sharply to a weak Sell due
to the extreme low ETF P/Cs Wed & Thur.
Update Alt EMA. Bearish sentiment VST (grn) reached a strong Sell, but the
LT (blu) is more reliable as an INT indicator.
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, SMA only]. Weights
are 80%/20%.
Update. Bearish sentiment remains positive below a weak Buy.
Update EMA. As noted June 7, the prolonged SPX uptrend caused the SPX Trend of the UVXY $ Vol
component to bias the EMA downward so the SPX Trend adj was removed for the EMA.
Bearish sentiment improved to near a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment moved up from neutral,
but well short of a weak Buy.
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 fell sharply (due to ETF P/C), but note 2022
top required LT (blu) to reach a strong Sell.
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 fell to the weak Buy level as ETF sentiment
declined.
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 dropped to a weak Sell and seems to be following
the pattern of 2nd half 2021.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment fell to a weak Sell Wed/Thur with the
ETF P/C then bounced.
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 above
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 fell to a strong Sell due to the low ETF P/Cs.
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 fell near to a strong Sell due to the low ETF P/Cs.
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 June 21. 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 5432, options OI for Mon is moderate with neutral OI
between 5380 to 5475.
Wed June 19th is a Holiday.
For Fri AM strong SPX OI call resistance exists above 5400 and may pressure
prices lower.
For Fri PM moderate SPX OI shows weak call resistance down to 5350.
For Fri PM strong QQQ (NDX/40) OI shows that prices have jumped over strong call
resistance for 465-75 and faces decreasing resistance over 480. Thus delta
hedging could aid higher prices toward strong resistance at 500 (NDX 20.5k).
BE is 451.
For Fri EOM strong SPX OI shows put support up to 5400 and strong call
resistance at 5500 and super strong at 5600. Ignore BE.
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 is
slightly positive at +0.1 SD, NQ (NDX) is slightly positive at +0.1 SD, YM (DJIA)
improved to just below neutral at -0.25 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. Late June and early July could provide some hurdles
for the markets ST with Trumps SCOTUS immunity to insurrection charges late June
and the "hush money" sentencing July 11. Oddsmakers are showing only a 17%
probability for jail time and I am beginning to wonder if this won't be a "sell
the news" event due to the current optimisn.. This is the best discussion
I have seen so far of the sentencing.
Weekly Trade Alert. No price targets, but a slight positive bias. Updates @mrktsignals.
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