No specific guidance was given last week for the SPX other than a positive
bias due to the potential for a continued advance in the QQQ (NDX ETF).
The bull market looked alive and well Mon with the NDX rallying to just below
20K and the SPX above 5K, but the extreme call buying noted for the ETFs (NDX &
SPY) last week put a lid on the rally for the rest of the week. As a
result the NDX was almost unchanged with profit-taking hitting the Mag-7, while
the SPX kept about half its gains at 5465. Last week I noted that Trumps
July 11 sentencing could be a turning point and as it turns out CPI for June is
released the same morning. Gas prices were a major contributor to May's
CPI decline with oil down from Apr's $88/bbl to $77, but oil has already bounced
from the June low at $72 to $81 and is likely to be an upward pressure on CPI
for the next few months. Potential exists for a final blow off (INT) if
one/both July 11th news items are benign.
Overall sentiment does not indicate any major market turns ST, but possibly
by mid-July.
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 fell slightly toward the strong Sell
level as ETF P/Cs remained low.
Update Alt EMA. Bearish sentiment ST reversed to above a weak Sell as ETF
P/C stabilized.
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 fell but remained above neutral.
Update EMA. Bearish sentiment fell below neutral, but closed near it.
The ST VIX calls and SPXADP indicator bearish sentiment fell to 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 INT continued to fall beyond a weak Sell due
to the Hedge Spread/ETF P/Cs.
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 remains at the weak Buy level.
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 fell sharply at the beginning of the week then
bounced back to the weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment continued to fall across all time frames
with the LT(blu) at the weak Sell level (-1 SD). Similar to July 2023, an
8-10% may occur if the LT EMA reaches -1.5 SD.
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 turned negative.
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 is at low extremes due to 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 is at low extremes due to 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 28. 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 for Dec exp.
A new addition is added for OI $ amounts with breakeven pts (BE) where
call & put $ amounts crossand $ volume.
With Fri close at SPX 5465, options OI for Mon is moderate with high P/C but off
setting ITM calls, indicating a likely range of 5450-5500.
Wed has smaller OI where SPX has lower P/C and a wider potential range of
5400-500.
For Fri stronger SPX OI with a large contingent of ITM calls could pressure
prices toward put support at 5400-25 .
Using the GDX as a gold miner proxy closing at 34, put support is at 33 and call
resistance at 36.
Currently the TLT is 94 with the TNX at 4.26%, TLT is at moderate call
resistance with put support at 90. The large straddle at 92 is "max pain" and
could 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 is
slightly positive at +0.1 SD, NQ (NDX) is slightly positive at +0.1 SD, YM (DJIA)
remains just below neutral at -0.1 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. The new adage seems to be that stocks take the
elevator to the top but bearish sentiment takes the stairs down. The main
reason why I had been looking for more of a rounded top was to allow for more
time for bearish sentiment to decline. The DJIA has mostly followed this
pattern trading between 37k to 49k since Jan, but the AI powered NDX has pulled
the SPX along for the ride.
Weekly Trade Alert. Next week is likely to have a negative bias
with an SPX OI target of 5400-25 for the EOW/EOM. Updates @mrktsignals.
No comments:
Post a Comment