Last weeks call for a repeat for the prior weeks pattern of mid-week weakness
worked almost perfectly as Mon-Tue saw minor highs in SPX to 5670 mainly due to
strength in DJIA, but the bottom fell out of the tech sector Wed-Thur, dropping
the SPX 3% (NDX 6%) to a low of 5520 before a late bounce toward 5550 (target
5500-5550).. Fri the expected recovery fell short, however, when an
apparent update by a cloud-based cyber security firm , Crowdstrike, caused havoc
with businesses using MS Windows. Problems with banks, brokerages and
hospitals were widespread and an early rally was sold hard when the news spread,
briefly dropping the SPX below 5500 (close 5505).
Several months ago I had discussed one of the main reasons I was expecting an
important top near the election was that as the election neared and it became
more clear that Trump would win nobody would want to be short. With the
news of the last two weeks of the SCOTUS ruling on Trumps "immunity", Bidens
flub of the debate, and recently Trumps assassination attempt with 24/7 coverage,
Trump has now emerged as a heavy favorite. As a result of one of the strongest
selloffs in the markets for several months was a strong drop in hedging led by the
ETF put/call ratio, now putting some of the INT/LT indicators at levels similar to late 2021.
ST indicators including the ST Composite and VIX call indicator remain at the
weak Sell level so only a weak rebound is expected thru EOM.
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 turned down to a weak Sell lead by
the ETF put/calls.
Update Alt EMA. Bearish sentiment continues its downward trajectory, but
well short of what was seen at the early 2020 and 2022 tops.
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 below the weak Sell and closed slightly above
it.
Update EMA. Bearish sentiment fell below the weak Sell and closed slightly
above it.
The ST VIX calls and SPXADP indicator bearish sentiment fell below the
weak Sell and closed slightly above it.
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 below a strong Sell and appears to be
following the pattern of the last two months of 2021.
Bonds (TNX). Bearish sentiment remains at extreme lows while
rates acted negatively after Trumps tax proposals (more deficits).
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 near a strong Buy.
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 in a tight range around a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment continues to decline and is now similar
to Nov 2021.
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 receded back 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 fell sharply again below the strong Sell based on ETF
put/calls while 3x ETFs are lower than the Jan 2022 top.
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 is nearing a strong Sell while 2x ETFs are 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 July 26 & EOM. A text overlay is used for extreme OI to improve readability,
P/C is not changed. This week skips GDX and TLT OI..
A new addition is added for OI $ amounts with breakeven pts (BE) where
call & put $ amounts cross.
With Fri close at SPX 5505, options OI for Mon is moderate and heavily skewed to
the put side. Put support is strong at 5500 and moderate up to 5550, call
resistance is non-existent until 5700.
Wed has smaller SPX OI where put support extends up to 5985 and a move over 5550
is likely.
For Fri stronger SPX shows put support up to the 5550-5600 and the straddle at
5600 may contain any rallies. Call resistance is at 5630 .
For Wed EOM strong SPX OI is heavily call biased due to the 5325s but is likely
too far ITM to matter. SPX 5550-5600 looks likely for a close.
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 near a weak Sell -0.75 SD, YM (DJIA) is
near a weak Sell -0.75 SD.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. It is too difficult to say if last week was the
beginning of something more important. The effects of the "Trump
pre-victory" party are likely over so the next few weeks are likely to be driven
more by earnings. The lack of an increase in bearish sentiment does allow
for considerable more downside, but such an outcome would probably be event
driven such as the Crowdstrike problem Fri.
Weekly Trade Alert. Looking for a bounce to SPX 5550-600. Updates @mrktsignals.
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