Welcome to the Butterfly Effect

Whoosh!  The strong Sell indicated by bullish positioning on the NDX futures (NQ) last week contributed to a 6% decline from Mon opening high at 21k to a low Fri of 19750.  The good news is that the SPX managed to hold the 200D SMA at 5730, but the bad news is that NDX futures positioning remains the same.  An excellent article at Phils Stockworld Fri disussed the longer term implications of possible results of Trumps use of trade wars as a negotiation tactic.  I am no expert on international trade, but the article gave me a pause.  If the SPX can continue to hold the 200D SMA, then the outlook for 6250 by mid-year seems possible as a result of a positive stimulus, such as peace in Ukraine, but otherwise...  Two prominent EW analysts, Avi G and Dr Schure (SPX, NDX), recently published outlooks for an "irregular expanded flat" which conforms to my outlook with a low around current levels and a final move to SPX 6250+, but as a contrarian, it makes me a little uncomfortable when everyone agrees with me.

The SPX decline of about 5% in two weeks tp 5850 did little to increase bearish sentiment, but last weeks decline of about 5% from Mon AM high to 5666 seemed to finally waken the slumbering bears moving the LT indicators to neutral, INT/LT above neutral and  ST Composite to a strong Buy VST.  My outlook, however, remains for more of a rounded bottom with continued volatility for a few weeks until late Mar before a sustained rally.  With Fri close at 5770, a low in upper 5600s and high of upper 5800s is likely ST.

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 improved from a weak Sell, but remains below neutral.

Update Alt EMA. Bearish sentiment has remained below neutral for almost a year, but has refused to drop to a strong Sell seen at the Jan 2020 and 2022 tops with the current decline pushing back above 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 spiked to a strong Buy last week, but similar to the late Dec decline, volatility may continue for a couple of weeks before a sustained rally.

Update EMA. Bearish sentiment hit a strong Buy VST (grn) before reversing back to neutral as the SPX held the 200D SMA (5730).  This is similar to the Dec 2021 and 2024 before a final rally.

The ST VIX calls and SPXADP indicator bearish sentiment moved above neutral, but seems to be stuck between a weak Buy and Sell, possibly due to late day reversals.

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 spiked sharply from an extreme strong Sell in late Jan & early Feb which matched the SPX price highs of Nov & Jan 2021, and Aug 2023 & 2024.  A multi-week rally is likely to start soon.

FOMO Calls Bearish sentiment improved considerably, but remains short of a weak Buy.

Bonds (TNX).  Bearish sentiment remains at a low extreme.

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 rise with combined sentiment now at a weak Buy.  Sentiment seems to be following 2022 bear market where current lows could see a significant advance.

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 jumped from a weak Sell to neutral.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment moved back to neutral, matching the Jan levels.

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 mildly 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 remains tied to a weak Sell as the level of ETF (SQQQ/TQQQ) sentiment has remained at that level for over 1 year with ETF options currently moving sentiment to a weak Sell from a strong Sell in late Jan.

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 back above 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 Mar 14. 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 5770, options OI for Mon is small with most of the call resistance above 5800.  Prices should move above 5800

Wed has very small OI where SPX could rise to 5850 or higher.

For Fri stronger SPX OI put positions are likely to keep prices above 5800 with little call resistance until 5900.

For Mon EOQ strong put support extends up to 5800 while call resistance exists over 5900.

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 fell to near a weak Sell at -0.75 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
   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.   I wish I had been more bearish, but I find that a market that is controlled from one day to next by which side of the bed POTUS gets up on to be very frustrating.  Bigger picture, things seem to going much as expected, but the level of uncertainty is increasing as you what might happen if sell stops start to be triggered, on the other hand, with big money supporting the Trump campaign, much of it from corporate donors, will they let the market fall this early.  I haven't looked at the Rydex 3X Bear/Bull ETF Indicator for a while, but it is one indicator warning of a bear market soon, if not already.

Weekly Trade Alert.  Expecting more volatility the next two to three weeks with an inside trading range from last week (5670-5900) for next week.  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
Article Index 2016 by Topic

Long term forecasts

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