Last weeks outlook was for strength into Wed with SPX indicating a target of
5850+ and the high was 5851. Thur EOM was expected to be weak with more
volatility due to low hedging with an expected retest of 5800, but weak tech
earnings and a technical breakdown of a bullish triangle led to a mini-panic
down to SPX 5808. A Fri rebound was expected, but turned out to be
somewhat weaker than expected with the surprisingly weak jobbs report and only
12K jobs added, but the result was explained as a result of the FL hurricanes
and Boeing strike. On the positive side the Nov FOMC is next Wed/Thur due
to the Tue election, and the weak jobs report could be ammunition for a dovish
Fed and a move back to SPX 5800 which seems to align with this weeks SPX options
OI..
Last weeks volatility has moved the INT/LT indicators back to neutral, while
the ST indicators (ST Composite & VIX Calls) have moved to a weak Buy. The
VIX call indicator is somewhat unusual as sentiment is determined by a high P/C
(1.0) last seen in the 2nd half of 2021. This tends to be less bullish
than high VIX call volume so the strong Buy is downgraded to a weak Buy.
Next week is the Nov FOMC meeting on Wed/Thur due to the Tue election.
A Trump victory is likely priced in, but a dovish Fed (rate cut) seems to be
indicated by the SPX options OI with a likely move back above SPX 5800 by Fri.
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 has inreased from a weak Sell, but
remains below neutral.
Update Alt EMA. Bearish sentiment has inreased from a weak Sell, but
remains 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 moved up sharply from neutral to a weak Buy.
Update EMA. Bearish sentiment moved up sharply from neutral to a weak Buy
VST (grn).
The ST VIX calls and SPXADP indicator bearish sentiment moved up very sharply
from above neutral to just below a strong Buy. Normally, VIX call Buys are
triggered by high call volume on strong advances, this one is triggered by high
put volume on declines as shown in the second chart.
The ST VIX calls and puts with ratio bearish sentiment shows that low volume
(300k) and high P/C (1.0+) can be bullish as seen in the last half of 2021, but
less so than when there is high call volume.
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 moved up sharply from near a strong Sell to
neutral.
Bonds (TNX). Bearish sentiment in bonds remains at extreme lows
even though rates have retraced almost half of their losses from the 5% high.
Rates could rise much higher if the US follows the UK example of "What debt limit,
just redefine debt."
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, INT view. Bearish sentiment has declined from a strong to weak Buy
even with a 10% correction and may decline further.
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 neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment moved up from below a weak Sell to below
neutral in a range similar to late 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 moved up above
neutral to the area that has marked ST bottoms the last 6 mns.
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 moved above a strong Sell but remains near low extremes.
Fri announcement of NVDA replacing INTC in DJIA by Nov 8 could provide ST bounce.
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 moved up from a weak Sell.
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 8. A text overlay is used for extreme OI to improve readability,
P/C is not changed. A new addition is added for OI $ amounts with breakeven pts (BE) where
call & put $ amounts cross.
With Fri close at SPX 5729, options OI for Mon is moderate.with strong put
support at 5700 and little call resistance until 5900. High BE at 5815
should provide upward bias.
Wed also has moderate SPX OI where put support rises to 5750 and call resistance
starts at 5800 and BE is 5815. With FOMC Wed/Thur, possible range is
5750-5800+.
Fri also has moderate SPX OI where put support rises to 5775-5825 (based on
straddles) and call resistance starts at 5850 and BE is 5825. There is a
good chance that a dovish FOMC results in a move to 5800-25.
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
slightly negative at -.75 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. Overall, the stock market appears in a topping
process similar to the last six months of 2021, but does not show the extreme
low bearish sentiment previously seen at a major top except in the tech sector.
ST Indicators (ST Composite & VIX calls) indicate a move back over 5800 is
probable this week with the FOMC Wed/Thur, but the hedge spread remains at very
low levels and more volatility is likely.
Weekly Trade Alert. More volatility is possible early in the week,
but a move to SPX 5800-25 looks likely by EOW. Updates @mrktsignals.
