A weak bounce for the week was expected over SPX 5900 before a retest
of the lows (5853) by EOM from the previous weeks close at 5869. The SPX
started out stronger than expected with a Mon move over 5900 followed retests of
the lows both Tue & Wed open with news of an exchange of more advanced missiles
by Ukraine and Russia. The result was an increase in bearish sentiment that
resulted in even higher prices, pushing the SPX to a high of 5973 by Fri.
Undoubtedly, sentiment was supported by a major change in common EW outlook as
shown by Avi as the prior drop to 5853 caused an
overlap of w-1 and w-4 which invalidated Avi's outlook for a direct move to SPX
6100-200. Instead, his primary count became a bear market with SPX 3800
expected by mid-2025, and the alt-bullish count was for a drop to SPX 5600s by
early Dec then a move to 6200+ early 2025. However, last weeks performance
is more consistent with Tom Demark's outlook as the DJIA continued to plow ahead
aided by foreign investors preference for US stocks as the US$ advances, while
SPX and NDX lagged.
Only minor changes were seen for sentiment during the week as ST sentiment
moved from positive to neutral. SPX options OI reflects the increased
bearish sentiment from last weeks early gyrations and is now showing put support
around 5900. Hedging remains very low and intra-day volatility is expected
to continue.
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 fell to a weak Sell as ETF P/Cs
(hedging) fell sharply.
Update Alt EMA. Bearish sentiment VST (grn) rose above a weak Sell at the
EOW.
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 neutral.
Update EMA. Bearish sentiment fell sharply from above neutral to nearing a
weak Sell.
The ST VIX calls and SPXADP indicator bearish sentiment fell from slightly
positive to 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 fell to a strong Sell VST (grn) and is in
the area where several ST pullbacks occurred, mainly due to low hedging.
Bonds (TNX). Bearish sentiment remains at low extremes as rates
consolidate below 4.5%.
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 continued to fall beyond a weak Sell as DUST
volume remains very low.
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 rose slightly but remains near a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment continues to edge lower.
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 remains 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 declined to just above a strong Sell.
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 declined to 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 29. 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 5969, options OI for Mon is moderate with some put support
in the low 5900s and call resistance at 5990.
Wed has small OI where SPX has strong put support at 5900 and call resistance
over 5970.
For Fri EOM strong SPX OI shows negative bias toward 5900, but delta hedging
could keep prices between 5940 and 5990, strong resistance.
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 remains
at a weak Sell at -0.85 SD, NQ (NDX) is at stronger weak Sell at -1.5 SD, YM (DJIA) remains a weak Sell -1.0 SD.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. Despite insanely high stock prices by many measures
the current bull market keeps going up much like the Energizer bunny. One
potential reason for this as mentioned in several excerpts above is the
speculation by longs and shorts as shown by the ETF Puts & Calls.
As you can see from above, speculation is much higher based on volume of P&Cs
compared to late 2021 and is more like mid-2023 following a large correction
with high bearish sentiment when P volume > Cs, indicating strong hedging, but
as we are currently seeing C volume > P, so hedging is low and risk is rising.
However, P volume is still much higher than late 2021, so risk is lower.
Weekly Trade Alert. Next week could see a pullback toward SPX 5900 based on SPX
options OI support, but ST indicators remain neutral, so sideways chop is also
possible thru EOM. Updates @mrktsignals.
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