Where's the Cheese?

Gap Filled!  Since the 1st of Feb, I had been looking for a new ATH in SPX (6125-50) and Feb 19 topped at 6147, but before a a move significantly higher a fill of the mid-Jan gap at 5850 was likely and that was filled at 5838 Fri AM.  What followed was an SPX 100+ pt rally to close at 5954.  The speed of the decline was unexpected, however, and combined with the rapid recovery looks very much like the mid-Dec (hawkish Fed) decline.  The initial Dec recovery of 80% in several days was, however, followed by two retests over the next three weeks and a final lower low.  This would fit my timing better with a mid-late Mar turnaround.  Much of the decline was concentrated in big cap techs and was strongly correlated with the 20% crash in BTC following the $1.5B heist of Ethereum by NK hackers on the 21st.  As a result the NDX made lower lows for 2025 while the SPX did not (aligns with sentiment), this could be a wakeup call for cryptos.

Some interesting developments on the political front last week with the contentious meeting between Ukraine's Zelenski and Pres Trump as its starting to sound like the POTUS is pushing a protection racket that Al Capone would be proud of.  I just became aware of the "Mar-a-lago Accord" concept last week, but apparently Phase Two after tariffs is "arm twisting" to get our trading partners to buy low int rate 100 year US T-bonds to refinance our national debt in return for future military protection and cooperation to lower the US$ to reduce our trade deficit.  WTF.  (Seems to be modelled after 1985 Plaza Accord.)

ST Composite rose to a weak Buy while the VIX call indicator remains near neutral with the biggest change in bearish sentiment being a sharp drop in the NDX COT futures sentiment.  Other INT/LT sentiment indicators show a moderate improvement. The NAIIM active manager exposure index fell back to avg 87%, while AAII bearish sentiment rose to a 2 year high (mom&pop).

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 turned up slightly from a weak Sell.

Update Alt EMA. Bearish sentiment VST (grn) turned up sharply from near a strong Sell to near 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 moved back above a weak Buy.

Update EMA. Bearish sentiment VST (grn) moved a weak Buy Thur, but retreated to below on Fri.

The ST VIX calls and SPXADP indicator bearish sentiment remains near neutral.  Typically, 2-3 days of peak daily VIX call buying (1M+) are seen before a turn, but this time there was only 1 (Feb 18 & 27).

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 aboved a weak Sell, but remains below the Dec-Jan pullback level.

Update FOMO Calls. Bearish sentiment showed surprisingly little change and remains neutral.

Bonds (TNX).  Bearish sentiment continued lower as rates approached 4.2%.

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 jumped sharply as prices fell below 320 with the ETF ratio hitting a weak Buy.

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 moved up slightly from below to above a weak Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment also increased sharply to above a weak Sell but remains lower than seen with the Dec-Jan pullback.

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 fell slightly to below 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 was 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 improved slightly but 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 Mar 7. 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 5954, options OI for Mon is moderate with call resistance at 6000 and ITM puts should push prices toward 5975-6000.

Wed has smaller OI where SPX has a similar upward bias.

For Fri jobs report, stronger OI and $OI should push prices over SPX 6000 toward BE at 6025.  Higher unempl may start to trickle in due to DOGE induced gov't layoffs.

For Fri AM Mar optn exp, strong SPX has a large straddle at 6000 that could limit advances.

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 -0.20 SD, NQ (NDX) bearish sentiment jumped to 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.  Over the past two years I've made allusions to the tech bubble from 1998-2000 and the current market, one of which was the divergence between the DJIA which held up for a year longer than the NDX and we may be seeing early signs of such divergence.  ETFs (SQQQ/TQQQ) have been warning for a while and NVDAs sharp reversal with blowout EPS Wed PM combined with new 2025 lows for NDX while DJIA remains 3% over its 2025 lows may be a warning of future trouble.  I am still expecting ATHs for the SPX around June-July, but if Trumps "American renaissance" starts to falter, markets may follow suit in the Fall.

Weekly Trade Alert.  A bottom was likely Friday and if the Jan pullback serves as a guideline a move to the SPX mid-, upper 6000s is possible, esp if there are signs of weakness in the jobs data Fri.  However, inflation remains a threat, and a retest(s) of the lows are likely mid-, late Mar.  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

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