Last week was expected to be positive, up to about the SPX 50D SMA at 5450,
but after a flat Mon, the Tue PPI came in weaker than expected setting off a
strong rally to just below 5450 based on support for a dovish Fed, while Thur
strong retail sales squashed recession fears and set off another strong rally to
SPX 5540. As it turns out the high for the week for NDX was the 50D SMA.
Fri continued the rise erasing all of the 3 day "flash crash" following the BOJ
rate hike early Aug.
The ST Composite has now reversed from a weak Buy to a weak Sell, so some
pullback is likely soon. The VIX call indicator remains near neutral,
however, so the pullback is expected to be modest with lower volatility.
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 continued to rise from a weak Sell
to neutral.
Update Alt EMA. Bearish sentiment fell below 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, SMA only]. Weights
are 80%/20%.
Update. Bearish sentiment reversed completely from above a weak Buy to below
a weak Sell, near the level of the July top. The 1st wave up is likely
near an end.
Update EMA. Bearish sentiment VST (grn) shows an even sharper reversal.
The ST VIX calls and SPXADP indicator bearish sentiment correctly called for
an increase in downside volatility from the July top, but did not reach a Buy at
the lows and is not showing a Sell now. Any pullback from current levels
is not likely to be as extreme.
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 has reversed from positive to a weak Sell.
The strong Sell at the July highs matched the level of the July 2023 highs which
also resulted in a SPX 500 pt decline, but over 3 mns.
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 reached an even more extreme Buy based on huge
volume in the inverse NUGT Aug 12.
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 declined from above neutral to a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment continued to decline, now right at
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 has remained much
closer to neutral than prior to the Jan 2022 top, perhaps this due to more
hedging with ETF options, see NDX & SPX below.
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 sharply above the weak Sell level due to hedging with
ETF options.
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 rose to positive, 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 Aug 23. 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 5554, options OI for Mon is modest where delta hedging is
positive above 5550, but below 5550 could target 5500.
Wed SPX OI is smaller with a slight bias toward 5500.
For Fri moderate SPX OI indicates a similar bias as Mon/Wed with a bias toward
5500 or lower, strong put support is at 5400.
For Fri EOM strong SPX OI also indicates a bias toward 5500.
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 a weak Sell at -1.0 SD, YM (DJIA) is
neutral -0.25 SD. Note updates are Tue, so may be out of date.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. Two weeks after the "flash crash", the SPX has now
retraced about 78% of the entire decline from SPX 5670. Many were
expecting the beginning of a major bear market, but continued moderation in
inflation and a resilient economy continue to support markets. With Trumps
second presidency seeming to be a done deal a couple of weeks ago, a potential
upset seems to be lurking in the shadows with recent polls showing Harris'
support vs Trump almost twice that of Biden according to
AskAI.
A Trump loss could be a major surprise and provide another "gray swan" event for
the markets.
Weekly Trade Alert. SPX options OI indicates a possible pullback to
5450-5500 thru EOM. Updates @mrktsignals.
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