Last week was expected to start slow (SPX 5275-5300) and the Mon AM
NYSE quote system glitch likely provided an excuse for selling with the SPX
dropping to 5240 before a late turn around. Wed AM weak ADP jobs report of
150K jobs added and Canada's CB int rate cut revved up the bulls as this was
seen as a green light for the Fed and the SPX closed at 5354 just over the Fri
target of 5325-50. That ended up as the high close for the week as the SPX
call OI at 5350 provided strong resistance for the close even as Fri made a new
high at SPX 5375 before closing at 5347. Next week looks to be less
exciting as SPX OI continues to show strong resistance at 5350 and put support
around the 5300 area.
Fri unempl report was a little strange as the unempl rate did increase as
forecast by the weekly initial claims from 3.9 to 4.0%, but the jobs added
increased to 272k. Normally this would be due to an increase in the
participation rate (HS and college grads), but the BLS report showed little
change. Although it seemed to be good enough for the stock market, the
bond market was less pleased with the TNX rising 1.5BP from 4.28 to 4.43%, or
about 1/3 of the gains since late Apr. Next weeks test is Wed with the AM
CPI and PM FOMC. Oil prices dropping to the mid-70s/bbl may help the CPI,
but markets are likely to be disappointed if some mention of a July fed funds
cut is not seen.
The weak Buys from the ST Composite and VIX call indicator worked well for
last week, but both are now back to neutral. A jump in the Hedge Spread
Thur with the ETF P/C over 2.0 may keep SPX over 5300 for a few days, but the
SPX OI for the 21st still indicates that the mid-5200s are likely by then.
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 rose above neutral early in the week
then retreated slightly.
Update Alt EMA. Bearish sentiment rose above 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 declined but remains above neutral.
Update EMA. Bearish sentiment fell slightly as extreme sentiment for the
UVXY depress EMAs.
The ST VIX calls and SPXADP indicator bearish sentiment moved back 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 declined slightly below neutral.
CITI Surprise Inflation Index for May is being shown to mainly to show
the difference between the US (red), EU (blue) and CA (grn). both the EU
and CA lowered CB int rates last Wed/Thur leading many to speculate that the Fed
would surely follow which lead to a move over SPX 5350. However, both EU
and CA saw inflation fall more sharply and remain near pre-pandemic lows, while
the US bottomed ar the late 2023 Fed "pivot" and have risen well above
pre-pandemic lows.
Bonds (TNX). Bearish sentiment remains at low extremes with a
sharp jump with Fri jobs numbers even though the unempl rate rose as forecasted.
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 rose back to the strong Buy level. Just
to repeat, I went back to 2018 to show that there may be significant lows ahead
before a major rally.
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 below neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment rose to a weak Buy on Thur with an ETF
P/C over 2.0 then retreated back to neutral.
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 rose to 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 rose above the weak Sell but remains below neutral.
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 rose above 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 June 14. 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 cross.
With Fri close at SPX 5347, options OI for Mon is moderate with strong call
resistance at 5350 and weak put support down to 5250. SPX 5325-50 is
likely.
Wed has small OI where SPX similar to Mon but weaker put support, range 5350
down to 5300 or lower.
For Fri moderate SPX OI Has more ITM calls and call resistance down to 5325
where a move below the 5300 straddle can extend to 5275, but a close near 5300
is likely.
For Fri 21st PM moderate SPX OI shows substantial ITM calls between 5200-5300
where 5250ish 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 is neutral at
0.0 SD, NQ (NDX) is at
a weak neutral -0.25 SD, YM (DJIA)
remains near a weak Sell at -0.75 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. Trumps conviction turned out to be less important than
expected with the odds makers showing a 60%+ probability of winning POTUS and
only a 17% chance of jail time. June's FOMC should show whether a Fed rate
cut is due in July or be put off until Sept. I can't see much bias either
way, some I'm going to stay neutral.
Weekly Trade Alert. Probably a tight range SPX 5300-50 unless
surprise from CPI/FOMC. Updates @mrktsignals.
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