Last week was expected to see a reversal from the recent selloff in tech with
a weak Buy in the ST Composite, VIX Calls & SPXADP and Dumb Money/Smart money
indicators with SPX options OI indicating 6700-50 from 6600. The surprise
this time was to the upside with strength in techs from the three (A)migos
(AAPL,AMZN,Alphabet//GOOGL) offsetting continuing weakness in NVDA and BTC.
Metas purchase of GOOGLs AI tensor TPUs was seen as a blow to the effectiveness
of language processing AI tasks for NVDA GPUs.
ST/INT bearish sentiment fell from neutral/positive to neutral/negative as
the positive ST indicators from last week fell from positive to neutral, while
the ST/INT Composite moved from neutral to negative based on high call volume
(FOMO) and a lower hedge spread. A ST pullback is likely below SPX 6800
next week, but higher prices may be seen the week of the 10th with the FOMC
expected to lower rates again. In an unusual twist, no inflation data
since before the gov't shutdown will be available until the week after the FOMC
meeting although oil prices have been stable and food prices are declining
somewhat.
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 remains relatively unchanged above
neutral. A spike in SDS/SSO sentiment that may be related to ETF splits was
offset by UVXY $ volume.
Update Alt EMA. Bearish sentiment rose mid-week on a one-day spike in SSO
volume but closed the week mostly unchanged.
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 fell from over a weak Buy to below a weak Buy.
Update EMA. Bearish sentiment fell from over a weak Buy to
below a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment dropped
from a weak Buy to neutral on a high SPXADP.
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 fell from below neutral to a strong Sell (VST)
based on strong call volume and lower hedge spread.
Update FOMO calls. Bearish sentiment fell from neural to just below a weak
Sell with strong call volume.
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 fell back toward a strong Sell with a surge in
silver to ATHs.
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 fell sharply from a weak Buy VST (grn) to below
neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment fell to below neutral.
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 to a weak Buy
on a one-day surge in SSO volume that may be split related.
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 above neutral and could be ETF split related.
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 rose to a weak Buy, but could be ETF split related.
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 Dec 5. 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 6849, options OI for Mon is moderate with a large OI in
calls at 6900 as strong resistance and below 6850 could fall to 6800.
Wed has small SPX OI where call resistance between 6870-6950 may limit advances.
For Fri strong SPX OI call resistance between 6870-6900 should limit advances
with some put support below 6800.
Wed 10th FOMC has very small SPX OI where call resistance is is 6950 and put
support starts at 6825.
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
positive at + .5 SD, NQ (NDX) is more negative at -2.25 SD, YM (DJIA) is positive at +.5 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. SCOTUS has been quiet after the first discussions
regarding Trumps tariffs and if no decision is made before mid-Dec, it is likely
to be delayed into 2026. Last weeks rally was stronger than expected and
markets may be on hold until the following week with the Fed expected to lower
rates at the Dec 9-10 FOMC meeting.
Weekly Trade Alert. SPX options OI is indicating that a drop next
week is likely below 6800 with a range of about 6775-6875. Updates @mrktsignals.
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