Techs Falter, but Small Caps Soar

Last week gave no price targets, but a "pop & drop" was expected around the CPI, and although the CPI was late (Thur instead of Wed) the pop of SPX 1% occurred Wed with a drop to the early week lows after the CPI.  One of the reasons I expected a selloff following the benign CPI was that much of the decrease for May and June came from a drop in gas prices of 3.5%+ both months following oils drop from $87 to $72/bbl.  Gas prices dropped from $3.60 in Apr to $3.45 in June and have since risen 1.5% in July as oil has risen from a June low at $72 ro $84/bbl and gas prices are expected to continue to rise.  As a result inflation is unlikely to continue its drop.  Also Fri PPI showed strong wage pricing pressure, and as an anecdote Dollar Tree is expected to go to $1.50/item from $1.25 and Planet Fitness from $10/mn to $15/mn due to higher wages.

Last week saw a huge jump in options FOMO (call buying) and continued weakness in hedging that may be an indication of a late summer selloff of 8-10% similar to 2021.  For the ST, both the ST Composite and VIX Call indicator are near/at weak Sells and some mid-week weakness similar to late week seems likely.  Following the VIX call indicator is a chart of the VIX and VVIX which remains more bullish than bearish for the INT/LT.

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 slightly.

Update Alt EMA. Bearish sentiment VST is approaching a weak Sell.

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 sharply to below neutral last week after spending the last month near a weak Buy.

Update EMA. Bearish sentiment VST EMAs did reach a weak Sell and may cause some downward pressure VST next week.

The ST VIX calls and SPXADP indicator bearish sentiment also fell sharply last week to a weak Sell.

VIX & VIX volatility (VVIX). Bearish sentiment from the VIX is showing some unusual patterns as many have noted that the VIX (grn) is low compared to the late 2021 topping period, but the low VVIX compared to the VIX is more like a bottoming pattern.  For ref VVIX is defined as the expected volatility of the 30-day forward price of the VIX.

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. Bearish sentiment excess option call buying (FOMO) and low hedging sent sentiment sharply lower below a weak Sell.

Bonds (TNX).  Bearish sentiment continues to fall at extreme low levels.

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 from the 3x ETF remains at a strong Buy as the HUI has rallied over 5% the past few weeks.

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 near a weak Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment continued to decline reaching a strong Sell, but as in late 2021, the rally may continue into Aug before a Sept decline and a final rally into/thru the election.

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 back down but remains slightly positive.

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 remains near a strong Sell as ETF sentiment continues to decline.

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 higher than for NDX with 2x ETF sentiment 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 19. 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 5615, options OI for Mon is moderate with strong put support at 5575 and weak call resistance over 5600.

Wed has small SPX OI where put support drops to 5500 and some call resistance from 5550-5600.

For Fri AM strong SPX OI with $ amounts strongly skewed to the call side indicates the potential for a drop to 5500-50 and is likely to be below 5600.

For Fri PM moderate SPX OI shows stronger put support between 5500-50 and call resistance at 5600.  Weakness into Thur to 5500-50 is likely going to be reversed by Fri 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) neutral at -0.5 SD, Dow theory no longer supports DJIA.

Click dropdown list to select from the following options:

Tech / Other History
2024
   05.25 A possible rounded top aka May 2015, Initial Claims lead Unempl Rate, LT NYADV/Dec warning.    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.  Surprisingly, old man Biden insists that he is in for the long haul, but the Dems don't seem to have a lot of options.  Several weeks ago I saw an article that he may want to stick around long enough to pardon his son Biden if he is sent to prison and then step down due to "conflict of interest".  Earnings season begins soon and lasts thru Aug which may provide a cushion for stocks until late summer.

Weekly Trade Alert.  Some mid-week weakness again looks possible this week into SPX 5500-50 area with a recovery back above 5550 by late Fri.  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
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