Last week the US and China agreed to a trade compromise a few days earlier
than expected with the Nov 1 deadline which pushed the SPX close to the 7,000
mark at 6920 on Wed. Next week SCOTUS begins its review of the legality of
Trumps "emergency" tariffs and the consensus is
not favorable for Trump. This
may be why Trump essentially accepted a one-year cease fire rather than
demanding a more comprehensive agreement. The SCOTUS decision is expected to
follow the same line of argument as used to void Bidens power to forgive student
loans. Although a negative ruling would reduce the threat of inflation due
to tariffs, a tremendous amount of uncertainty could roil the markets over trade
agreements made under duress and potential reimbursement of previously collected
tariffs.
Markets were expected to be slightly positive ahead of the FOMC and negative
afterwards which was pretty much what happened outside of the +100 pt SPX bonanza
on the China trade deal (earlier than expt). Interesting that this time the FOMC
had two dissenters, Steve Miran (Trump appointee who always votes for 50BP cuts
and a KC Pres who voted no cuts, is the Empire striking back). The
disappointment was Powell who indicated doubts about future cuts, also for the
week the EU voted no cuts.
Sentiment remains shy of the extremes seen before previous tops but more
warning signs are appearing such as the NAAIM Investment Index over 100% and
Thursday's Hindenburg Omen (no J/S,
still needs a 2nd to confirm)..
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 fell slightly, but remains mid-way
between neutral and a weak Sell.
Update Alt EMA. Bearish sentiment fell slightly, but remains mid-way between
neutral and 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 rose higher above neutral based on negative breath
(SPXADP).
Update EMA. Bearish sentiment rose slightly.
The ST VIX calls and SPXADP indicator bearish sentiment rose from a weak Sell
to 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 rose to a weak Sell.
Update FOMO calls. Bearish sentiment rose from a strong to a weak Sell.
Similarity to late 2024 could mean another SPX pop higher for a double strong Sell.
Bonds (TNX). Bearish sentiment remains at low extremes. The
current two year triangle looks a lot like HUI from 2022-23, lets hope the same
outcome doesn't follow.
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 sharply above a strong Buy and could be
repeating the 2024 setup.
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 from a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment remains just above a weak Sell.
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 back over 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 slightly above 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 was flat and remains below 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 Nov 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 6840, options OI for Mon is moderate with put support up
to 6880 and a BE at 6860. Expect a modest increase 6860-80
Wed SPX options OI is small with BE at 6835, probable range 6850 +/- 25. .
For Fri SPX options OI is moderate with strong call resistance at/over 6900 and
little put support until 6800. Target 6800-50.
For Fri Nov exp, SPX options OI is large with ITM calls indicating a BE at 6750.
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 + .75 SD, NQ (NDX) remains at a weak Sell at -1.5 SD, YM (DJIA)
remains neutral 0.0 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. The stock market appears to be entering a blowoff
stage as there seems to be a lot of fast money rotating first into crypto, then
gold, will stocks be next? Possibly this is what markets look like
when you have AI driven market investment managers. NVDA EPS on Nov 19 could be pivotal. It is hard to tell
which way the markets will turn when SCOTUS decides the legality of Trumps
tariffs in Nov, but sharp price moves are likely.
Weekly Trade Alert. SPX options OI are indicating an early week run
toward 6900 with a late week fade back below 6850. Updates @mrktsignals.
