Last weeks FOMC outcome was much as expected with a 0.25% ST rate cut and two
more cuts expected this year. With inflation running close to 3%/yr, this
was considered to be inflationary and sent gold soaring and bonds tumbling.
And Trump wanted to lower rates to make housing more affordable, but as I have
said many times, lower ST rates do not cause LT rates to decline and instead as
in 2024 LT & mtg rates rose. The stock market was expected to follow a
"buy the rumor, sell the news" outcome, and the SPX rose close to 1% into
Tue/Wed to about 6625, before tumbling to 6550 Wed after the cut, well within
the 1-2% pullback expected. The surprise was that the pullback only lasted 2
hours before a late Wed recovery and continued rally into Thur/Fri. Fri
triple witch option exp was a surprise due to the fact that the high volume on a
strong day actually saw a 2 to 1 Dec/Adv volume which could be a sign of
distribution.
The next Bradley turn date on Oct 7 is quickly approaching and it
is looking more like it will be a top, but the continued modest changes in
sentiment indicators are puzzling. One possibility is that this is a
retail buyers market (dumb money) and may not fit the traditional sentiment
patterns. This may explain why the "dumb money" indicator is the most
bearish indicator I have. A supporting factor is the
AAII Investment Survey which last week jumped 50%
from 28% bullish to 42% bullish. If so, this could make a potential
decline unlike what most would expect (crash) and end up as a series of
event-driven pullbacks (Oct SCOTUS ruling on tariffs, Nov China trade deal, 2026
replacement of Powell).
As mentioned little change in sentiment this week with the ST Composite
remaining mildly positive, the VIX call & SPXADP neutral with positive SPXADP
offset by negative VIX calls, and ST/INT Composite (hedge spread, FOMO calls)
just above a weak Sell.ef
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 bounced off the weak Sell level with
a reversal in ETF P/Cs.
Update Alt EMA. Bearish sentiment rose for the week from a weak Sell back
toward 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 is little changed.
Update EMA. Bearish sentiment remains positive but below a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment rose slightly above
neutral.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (52%)
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 mid-week but closed back at a weak Sell.
Update FOMO calls. Bearish sentiment remains just above a weak Sell.
Bonds (TNX). Bearish sentiment remains at low extremes.
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 rose slightly as the miners continued higher, up
3% for the week.
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 rose moderately, back toward a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment spiked mid-week to neutral on an ETF P/C
of 2.0 Wed, but fell back to a weak Sell by Fri.
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 rose back above
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 rose back to a weak Sell even as prices rose over 24K.
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 bounced off 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 Sept 26. 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 for Oct 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 6664, options OI for Mon is moderate with strong call
resistance at 6700. Between SPX 6625-75 positive delta hedging can support
prices.
Wed has small SPX OI and again a break below the 6625-700 is needed to reverse
delta hedging.
For Fri moderate SPX OI shows stronger call resistance at 6700/+ and a move
below 6625 is needed to reverse delta hedging with put support at 6600.
For Tue Sept 30th EOQ strong SPX OI shows little put support until 6500, but
positive window dressing is expected to support prices around 6650 unless the
PCE is a big surprise.
Using the GDX as a gold miner proxy closing at 72.4 shows little put support and
next call resistance at 75 then 80.
Currently the TLT is 89 with the TNX at 4.1%, and with BE at 88 and put support
below 87, slightly higher rates are expected.
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 is
positive at + 1.0 SD, NQ (NDX) remains at a weak Sell at -1.25 SD, YM (DJIA)
moved to a positive +0.5 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. The most surprising outcome from the FOMC was that
there was only one dissention for the 0.25% rate cut. After the previous
meeting had three dissenters, many expected the addition of
Stephen Miran would weaken Powells support. Could this be a backlash
against Trumps bullish behavior toward any official that does not agree with his
agenda (Powell, Cook)?
Weekly Trade Alert. No specific guidelines this week with a
generally positive outlook thru Sept 30/Oct 7 with SPX 6750ish a possibility.
Last weeks SPX OI support for Wed at 6550 missed by 1 pt. Updates @mrktsignals.
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