Trumps Trade Wars Redeux

Last week I had a brain snafu calling the current SPX correction a 9% decline when it was 10.6% to SPX 5500, it was the DJIA down 9% with NDX down 13%.  In any case, the error made me wonder about what happened in Trumps first trade war in 2018, surprisingly the results so far were pretty much the same with a 3-4 week SPX decline of 10%+ retracing all of the gains from the previous Nov.  (See Tech/Other for chart/more details).

Last week did fall short of the upside target of SPX 5740 reaching 5715 Wed FOMC day as weakness in techs continued with the DJIA up 1% for the week right at the 200D SMA, while the SPX was up 0.5% and the NDX was flat.  Although most focused on J.Powells move to reduce QT to 5B/mn from 25B, I think the more important outcome was his calling the potential tariff-induced inflation pressures "transitory".  The same excuse was used to justify a more "dovish" outlook following the supply chain induced inflation following the covid pandemic.  This may be used to justify possible rate cuts in Jun and Sept as long as inflation remains between 2.5-3%/ann rate.  Since QT began in June 2022 the Feds B/S went from 9.2T to 6.8T, but an interesting report from the SL Fed in 2023 shows that since the pandemic the composition of the B/S has changed and is now mostly bank reserves and ST repo facilities that may indicate potential stress in the banking system.  Possible indication of the banking risk Avi has been warning about for the last two years.

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 retreated to below neutral, halfway to a weak Sell.

Update Alt EMA. Bearish sentiment 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 retreated from a strong Buy, similar to Jan.

Update EMA. Bearish sentiment reversed sharply mid-week to a weak Sell, but closed positive.

The ST VIX calls and SPXADP indicator bearish sentiment dropped from a weak Buy 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 sharply to a weak Sell from lower FOMO call and hedge spread sentiment.

EMA. Bearish sentiment .
Update FOMO Calls. Bearish sentiment dropped sharply.

Bonds (TNX).  Bearish sentiment remains at extreme lows.  I wonder if the US will see something like Germany where 10 yr rates rose 25% (US 4 to 5%) on a huge defense budget announcement.

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 continues to fall, ETF to neutral, combined near a weak Sell.

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 was little changed.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment dropped sharply to a weak Sell and may mean a pickup in volatility.

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 is little changed.

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 slightly lower.

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 is slightly lower.

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 Mar 28. A text overlay is used for extreme OI to improve readability, P/C is not changed. Also, this week includes a look at GDX, TLT & IBIT for Apr/Jun exp.   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 5668, options OI for Mon is small with put support in the 5650-700 range with a positive bias.

Wed has very small OI where SPX has call resistance between 5650 and 5700 with a bias to the lower part of the range.

For Fri SPX has moderate OI with strong put support up to 5675 and positive bias over 5700 and could test the 5700-40 area again.

For EOM strong SPX OI and put support up to 5700 could push prices toward 5740-50.

Using the GDX as a gold miner proxy closing at 44.5 is slightly over max call resistance with put support & BE at 43, but over 45 could see positive delta hedging.

Currently the TLT is 90.7 with the TNX at 4.25%, prices should remain in a tight range around 90-92 with stronger resistance overhead (lower rates).

Using the IBIT as a BTC proxy closing at 47.7 (BTC 84k), the large straddle at 48 is likely to keep prices in a tight range with stronger call resistance overhead.

IV. Technical / Other

This week I want to look back at the Trump 1.0 trade war (TW) which started in Jan 2018, POTUS second year in office.  This time Trump got off to an early start in Feb of 1st year. but the results were much the same, for Trump 1.0 TW from late Jan thru mid Feb, the SPX fell 13% retracing all of the rally from the prior Nov to the 200D SMA.  In the 2025 decline, the post election rally started at SPX 5700 (which seems to be ST resistance) and ended in late Feb although the decline so far was only 10.6% to 5500, but fell 4% below the 200D SMA.  If a similar trend follows, the next INT high could be in the Fall.

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 fell to near a weak Sell at -1.0 SD, NQ (NDX) bearish sentiment remains near a strong Sell at -2.0 SD, YM (DJIA) is neutral at 0.0 SD.

Click dropdown list to select from the following options:

Tech / Other History
2025
   03.15 Update of Technical Indicator Composite & SKEW plus VIX term structure.    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 overall fell modestly last week as markets took a breather from one of the fastest 10%+ corrections on record, but similar to the previous Trump trade war in 2018.  Sentiment trends are not unlike the Dec-Jan decline and are joined by the NAAIM active managers Index whixh fell to 64% where 60% is a strong Buy, also at the level of the Jan lows.  NAAIM also recently added an SPX chart and data table to aid historical comparisons.  Although it may just be me, but I think Powell likes being Fed chair and is likely to bend a knee to Trump by lowering rates even if inflation remains stubborn this year and it is beginning to look like that is all the market can hope for as Russia and EU seem less than enthusastic about Trumps plan for peace with Ukraine.

Weekly Trade Alert.  Possible up, down, up for the week, range SPX 5650-750.  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
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