Last weeks warning of a possible ST/INT inflection at the 90%
retracement for the TACO rally at SPX 6016 proved timely, at least on Fri.
Mon-Thur seemed like a struggle above SPX 6000 as early momentum weakened
mid-day and faltered at the close. The surprise attack on Iran by Israel
o/n Thur saw a sharp decline in stock futures and sharp rally in oil and gold
prices. The result was a drop to SPX 5960, down almost 100 pts from the
weeks high, before a close at 5977.
Its been almost almost two years since Hamas attacked an Israeli
civilian crowd and Israel has been on an almost non-stop war against various
militant groups since, many whom were funded by Iran. It somewhat reminds
me of the US response to the 9/11 attacks on the US. Another factor which
could be a strong motivation is that Russia has also been supportive of
militant groups in the ME with weapons and training, but the Ukraine conflict
has all but eliminated Russian support in the ME. If so, Israel may see
this as a generational opportunity and it may mean a wider conflict than most
expect.
Last week I incorrectly identified the ST Composite and VIX call indicators
as near weak Sells, as it was the FOMO call and VIX call indicators near weak
Sells. Both of the later improved from weak Sells halfway to neutral or
higher, however, the Hedge Spread showed a sharp drop in hedging thru Thur,
halfway to a strong Sell, before closing at a weak Sell. The ST Composite
5 day EMA (grn) jumped to a weak Buy so early weakness is likely to be reversed
Mon-Tue, but options OI is still negative later in the week with targets of SPX
5925-75.
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 dropped slightly below neutral.
Update Alt EMA. Bearish sentiment dropped for the week from above to 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 rose slightly at the EOW.
Update EMA. Bearish sentiment very ST (grn) rose to a weak Buy, a ST bounce
is possible.
The ST VIX calls and SPXADP indicator bearish sentiment rose toward neutral
from 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 rose slightly, but remains near a weak Sell.
Update FOMO-Calls. Bearish sentiment reversed from a weak Sell, but remains
below neutral.
Bonds (TNX). Bearish sentiment remains at low extremes.
Surprisingly rates rose from 4.35% as inflation fears offset a flight to safety.
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 as prices remain near highs.
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 sharply thru Thur in-between the
weak and strong Sells before closing just below a weak Sell. More
volatility is expected.
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 from a weak
Buy.
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 fell back to 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 declined from near 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 June 20. 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 5977, options OI for Mon is small with strong put support
at 5900 and call resistance at 6050. Smaller put support extends up to
6000 and early weakness is likely to be reversed by the close.
Wed SPX options OI is very small with support from 5950 down and resistance from
6000 up. A range of 5950-6000 is expected.
For Fri AM strong SPX OI shows a negative bias due to large ITM call position,
but is offset by large put position at 6000 straddle. With BE at 5910,
range 5925-75 is likely.
For Fri PM moderate OI with similar setup to AM where 5925-75 looks likely.
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) bearish
sentiment increased to 0.5 SD, NQ (NDX) bearish sentiment
remains near a weak Sell at
-0.75 SD, YM (DJIA) remains near a weak Sell at -0.75 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. I have been fairly sanguine for the inflation outlook thru
June-July, even indicating that a 2% CPI was possible, thereby giving the Fed
room to lower rates if the tariff turmoil continued. However, with
Trumps tariff reversal/pause and stocks near new highs, there is less pressure
for the Fed to act. Most have been expecting higher prices, but the Q1 GDP
showed a strongly negative net exports as sellers were "stocking up" before the
tariffs took effect and that has likely delayed higher prices due to tariffs
until Q3 & Q4. If the Israel/Iran conflict lasts for several months,
higher oil prices will also contribute to more inflation. So with the
tariff "pause" possibly expiring in July, the second half of 2025 could be full
of negative surprises.
Weekly Trade Alert. After early weaknes to SPX 5950 or lower a
bounce to 6000 is possible by mid-week, but lower prices (5925-75) are expected
by EOW. Updates @mrktsignals.
No comments:
Post a Comment