Last week showed considerable weakness intraday while volatility picked up as
predicted by the VIX call indicator. As noted under the ST Composite a
data glitch at Stockcharts produced faulty data for the week of Oct 7 and was
not corrected until the 14th which resulted in a no call for the week. The
SPX dropped about 1% for the week to 5808 with a low of 5785 Thur, but is showing
increasing support for the 5800 level as indicated in this weeks options OI.
The COT (futures) data showed a weak Sell for the DJIA (YM) and the Dow was down
about 3%, dropping every day, while the SPX was aided by strength in the NDX
with both having neutral sentiment.
The net result in last weeks volatility is an overall increase in bearishness
with the ST Composite and VIX call indicator returning to neutral.
However, The hedge spread remains very low, much like late 2021 and more
volatility is expected, but INT/LT sentiment remains only moderately bullish and
higher prices are possible until extreme bullish sentiment appears.
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 declined to slightly below a weak
Sell.
Update Alt EMA. Bearish sentiment reversed to slightly above 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 was reported incorrectly last week due to a data
glitch at Stockcharts.com for the entire week of Oct 7 and was not corrected
until Oct 14. The correct sentiment had declined to just above a weak Sell
and now has increased to neutral.
Update EMA. Bearish sentiment remained below neutral two weeks ago and last
week moved to above neutral.
The ST VIX calls and SPXADP indicator bearish sentiment correctly showed a
weak Sell last week and the divergence with the NYSE volume indicator resulted
in a missed call, but has now moved up strongly to well above 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 remains near a strong Sell based on strong
FOMO (call buying).
Bonds (TNX). Bearish sentiment remains at low extremes as rates
continue to creep upwards as the effects of a weakening economy battles with
strong spending and deficits (more borrowing).
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 has dropped well below a strong Buy as prices have
backed down to the 2022 highs.
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 has improved to just above a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment remains just below a weak Sell as ETF
P/Cs remain weak.
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 increased slightly
due to higher ETF bearishness vs lower options bearishness.
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 to the strong SEll level with the drop in 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 for SPX fell beyond the weak Sell 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 Nov 1. 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 5808, options OI for Mon is moderate as increased put OI
in the 5800s has pushed the BE to 5830 and high OI$. A move above 5825 is
likely.
Wed has small OI where SPX has put support at 5800 and 5750 and moderate call
resistance at 5875 and above. Positive bias to 5850+.
For Thur EOM strong SPX has large OI at 5825 and above, but strong put support
at 5800. Likely target 5800-25.
For Fri w/jobs report, moderate OI and mostly hedges between 5800-900 has a
positive bias below 5850 and negative bias above. Likely close near 5850.
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 -.5 SD, NQ (NDX) is at neutral at -0.5 SD, YM (DJIA) remains a weak Sell -1.0 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. As Kamela seems to permanently have her foot stuck in her
mouth, another Trump term is becoming increasingly likely and may result in a
post-election blow off, but SPX earnings growth is becoming more questionable
and could result in a sharp reversal in SPX prices by late Jan 2025.
Weekly Trade Alert. A trading range between SPX 5800-75 looks
likely. Updates @mrktsignals.
No comments:
Post a Comment