DOGE Does a Hostile Takeover

Last week went as well as expected with two positive surprises from Trump Wed.  To start the week the SPX rallied to the top of the target range for SPX of 5975 to 6075 with highs Mon and Tue of 6073 and 6076 before the expected drop Wed for the CPI which came in hotter than everyone else expected at 0.5%/mn and 3%+/yr.  The Wed target was 5975-6000 before a bounce and the actual low was 6003 before the expected bounce.  The two Trump surprises, delaying the broader implementation of tarriffs with Eurpoe and later positive news on peace negotiations with Putin over Ukraine, turbocharged the bounce and extended it thru Fri with a retest of the ATHs near SPX 6125 and NDX 22.1k. 

The biggest surprise for me, which may have been the real reason for the rally, was that LT int rates fell sharply after the stronger than expt PPI on Thur with the TNX rising 0.1% Wed on the CPI then falling 0.2% Thur & Fri to close below 4.5%.  The weak retail sales helped, but a similar dropoff was seen last Jan due to bad weather and may prove temporary.  I had been expecting higher stock prices and lower rates after Q1 due a tariff-induced slowdown, but if rates fall sooner, stocks may continue to rally.

Sentiment remains mixed with the NAAIM active manager index dropping 10 pts to 76%, 10 pts below the avg level of Q4 2024..

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 from near neutral to near a weak Sell.

Update Alt EMA. Bearish sentiment fell from near neutral to below 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 declined, but remains near a weak Buy.

Update EMA. Bearish sentiment declined below a weak Buy.

The ST VIX calls and SPXADP indicator bearish sentiment remains near 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 moved to half way between a weak and Strong Sell.

Update FOMO Call Indicator remains near neutral.

Bonds (TNX).  Bearish sentiment remains at extreme lows and declined slightly.

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 fell below neutral overall as ETF sentiment declined toward neutral.

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 fell back to a weak Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment rose early in the week then fell back to in between the weak and strong Sells.

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 declined from a weak Buy halfway to 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 is little changed.

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 near 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 Feb 21. 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. Note multiply OI$ by 100 for shares/contract.

With Fri close at SPX 6115, options OI for Tue (Mon is Pres Day holiday) is moderate with balanced P/C, but 10x call OI$ that could push prices below 6100.

Wed has much the same OI where SPX has about 10% of calls at 6075 and will likely test that level.

For Fri AM strong OI shows strong call resistance at/over SPX 6100 and is likely to  keep prices below that level.

For Fri PM moderate SPX OI has mostly far OTM puts with ITM calls down to 5800, but over 6100 there is little resistance until 6150, so a strong finish is possible EOW.

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 -0.25 SD, NQ (NDX) bearish sentiment declined to between a weak and strong Sell at -1.5 SD, YM (DJIA) is neutral at -0.35 SD.

Click dropdown list to select from the following options:

Tech / Other History
2025
   01.25 Update of NYSE Adv/Dec volume now at Sell level & SKEW shows warning of INT top (1-3mns).
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.  Sentiment remains somewhat mixed with the ST Composite remaining on a weak Buy while the VIX Call indicator and call FOMO are neutral.  INT/LT int rates (TNX) are a wild card and lower rates are a positive.  Some pullback thru mid-week looks likely with late week strength.

Weekly Trade Alert.  SPX options OI indicate a drop to SPX 6050-75 is possible by mid-week, with a move to ATHs (6125-50) more likely at EOW  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

Article Index 2019 by Topic, completed thru EOY 2020.02.04
Article Index 2018 by Topic
Article Index 2017 by Topic
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