To Meme or Not to Meme?

After some early weakness Mon AM below the SPX 5800 level (5770) as expected, the SPX rallied about 100 pts into the close.  Tue was a consolidation day, trading in a 50 pt range as concern over a possible uptick in inflation (CPI/PPI) and rising rates kept investors in check, but the Wed AM CPI release which was stronger than expected at 0.4%/mn was followed by a sigh of relief as the "core inflation" (less food and energy) dropped to 0.2%/mn.  What followed was a second 100 pt rally, mostly a gap open, a consolidation Thur and another gap open on Fri with a move over SPX 6000 to follow.  The target for the week was SPX 5950 or 3% and instead we got 4% from the lows.

Unfortunately with most of the gains on gap opens there was less participation and many sentiment indicators were little changed.  A couple of other analyst I follow who were looking for SPX 5500-600 in Jan-Feb are now looking for 6500-600 by mid-year.  Fri move up ti SPX 6000 did see a jump in VIX call buying to 3x daily avg, so a small pulback to possibly fill the Fri gap at 5940 seems likely as indicated by this weeks options OI, but a retest of 6000+ is likely by EOM.

One of the newer indicators, options FOMO, as part of the ST/INT Composite has performed better than expected compared to other indicators that were negatively affected by the high 0DTE option volume and is shown after the composite..

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 remains between neutral and a weak Sell.

Update Alt EMA. Bearish sentiment VST (grn) has fallen to the 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 declined from near a weak Buy Mon to neutral.

Update EMA. Bearish sentiment fell below neutral.

The ST VIX calls and SPXADP indicator bearish sentiment saw a sharp drop late in the week with strong VIX call Buying to near a weak Sell.

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 reversed sharply from above a weak Sell to near a strong Sell based on strong FOMO (call buying) as shown in the 2nd chart.

FOMO indicators have done very well over the past two years with the huge rise in 0DTE options while I have had to make adj to several other indicators.   I want to start showing a separate chart more often.  Bearish sentiment saw a strong Buy at the mid-Dec post-FOMC selloff which was early similar to Oct 2023, while the current less strong Sell may indicate a pause like early 2024 before a larger rally.

Bonds (TNX).  Bearish sentiment has started to creep up as rates hit a high of 4.8% early in the week after stricter tariffs on Russian oil, but pulled back on some signs of economic weakness and weaker core CPI.

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 rose even as gold and HUI rallied.

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 at a weak Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment fell to about halfway between neutral and a weak Sell.

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 near neutral.

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 at a weak 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 remains below 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 Jan 24 & EOM. A text overlay is used for extreme OI to improve readability, P/C is not changed. Also, this week includes a look at the OI for GDX, TLT & IBIT.   A new addition is added for OI $ amounts with breakeven pts (BE) where call & put $ amounts cross. Note multiply OI$ by 100 for shares/contract.

With Fri close at SPX 5997, options OI for Tue (Mon closed for MLK day) is small with put support at 5900 and call resistance at 6000.  Range of 5950-6000 looks likely.

Wed SPX has similar OI where SPX is likely to stay in the mid-5900s.

For Fri SPX shows moderate call resistance in the 5900s and with the straddle at 5950 is likely to trade between 5925-75.

For EOM SPX OI shows that strong put support begins around 5950 and strong call resistance is at 6020 with a BE of 5980.  Range of 5975-6025 is lkely.

Using the GDX as a gold miner proxy closing at 36.75.  options OI shows a tight range is likely between support at 35.5 and resistance at 37.5.

Currently the TLT is 87.2 with the TNX at 4.6%, there is little put support, but prices are below BE so rates may fall to 4.5% or lower.

Currently the IBIT is 59.6 with the $BTCUSD at 104k, early in the week when BTC fell to 88 IBIT hit 50.7 then both rallied about 20% into Fri close.  O/H resistance is 60.5 (108k) and strong at 65 (115k), support is 55.5.

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 neutral -0.1 SD, NQ (NDX) bearish sentiment is between a weak and strong Sell at -1.75 SD, YM (DJIA) remains below neutral at -0.5 SD.

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Tech / Other History
2024
   12.15 Comparison of NYSE Adv/Dec volume lows to peaks in SKEW shows ST (1 month) warning of INT tops.    12.06 High peaks in SKEW since 2018 have been early warning of INT tops as sign of "max" options bearishness.    09.07 A look at DJIA/SPX analog from the 2000 market top shows possible strength into year-end.    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.  The second most exciting thing that happened during the week was Fri release of Trumps meme coin which rocketed from $0.18 to over $30 for 16000% gain.  During Trumps first term, I accused him of being stockbrocker-in-chief due to his monitoring the markets after announcing possible policy changes and now it appears that he may become the cryptobroker-in-chief.  Why bother working when you can just subscribe to Truth Social and get rich speculating in crypto?

Weekly Trade Alert.  A pullback is likely next week to fill the nearest gap at SPX 5940, but a move back over 6000 to test the recent highs is likely by EOM.  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

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