Last week was expected to see a pause in the torrid pace of the
Thanksgiving rally to SPX 6850 with a range of about 100 pts (6775-6875).
The size of the range turned out to be almost perfect (6799-6896) but somewhat
higher, although the close (6870) was within the expected range. With
little movement and most of the gains on Fri, the change in bearish sentiment
was dramatic. In-house indicators saw the ST Composite drop below neutral
with the VIX call & SPXADP indicator moving to a weak Sell, while the ST/INT
Composite dropped to just shy of a strong Sell with the FOMO call indicator
making a second strong Sell similar to Jan 2025, the Hedge Spread nearing a
strong Sell and the DM/SM indicator at a weak Sell. Also the
NAAIM Index moved to 98.6%, nearing
the 100% strong Sell, and the AAII Survey bullish level jumped to within 1.5% of
its 12 mn high.
Looking at the overall indicator an INT top and the start of a 5-10% decline
is likely by mid-Jan and could possibly begin with a spike high and reversal
similar to the NVDA EPS release. Possible dates could be the FOMC next
week or possibly Jan 2 of 2026. Comparison to Jan-Feb 2025 highs indicates
about a two week continuance of last weeks rangebound behavior is
likely.
What could possibly go wrong for the bulls? As the title suggests,
little attention is being paid to recent changes to
Japans political and monetary policies,
but a new pro-grpwth PM and BOJ move away from ZIRP have sent int rates to
levels last seen in 1999 and 2007, both of which were pivotal for global stock
markets due to effects on the "yen carry trade".
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 below neutral.
Update Alt EMA. Bearish sentiment has fallen below neutral. The spike
in volume after the Nov 20 split in SDS was confirmed by
Yahoo finance, but still looks like
an anomaly.
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 has fallen below neutral.
Update EMA. Bearish sentiment remains slightly above neutral.
The ST VIX calls and SPXADP indicator bearish sentiment declined to a weak
Sell.
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 is near a strong Sell VST (grn) but LT still
needs a couple of more weeks to match the Jan 2025 levels.
Update FOMO calls. Bearish sentiment has fallen to its second strong Sell as
in Jan 2025, but preceded the Feb decline by a couple of weeks.
Bonds (TNX). Bearish sentiment remains at low extremes as 4%
looks like strong support.
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 remains at a strong Buy. In 2008 gold
declined by 25% (3000) before a much stronger rally for several years.
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.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment declined sharply VST toward a strong
Sell, but lower LT is likely.
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 remains over a
weak Buy due to strong volume.
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 declined further toward 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 has fallen back to 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 Dec 12. 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 6870, options OI for Mon is moderate where the calls and
puts at 6840 and 6850 can keep prices in a tight range of 6825-75 .
Wed has small SPX OI wwith little support/resistance between 6775 and 6950 that
could produce wild swings.
For Fri strong/moderate SPX OI has nuch stronger call resistance over 6900 than
put support until 6800. Looks like a "Sell the news" for Wed FOMC to
6800-50.
For Fri Dec 19th AM, strong SPX OI shows a huge straddle at 7000 that could
support pices but $Oi indicaes 6800 is possible.
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 less negative, but near -2.25 SD, YM (DJIA) is
less positive, but near +.5 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. As last weeks price action showed, rallies are getting
weaker and weaker due to over commitment by the bulls, but with many EW analysts
expecting SPX 7000+, the slow grind higher may continue for several more weeks.
Last week looked like capitulation by the bears, but LT sentiment has not
reached the extreme levels reached before INT tops as in 2022 and 2025.
Weekly Trade Alert. An upward bias is likely into the FOMC, but a
"Sell the news" to SPX 6800-50 is probable with wild swings possible Wed. Updates @mrktsignals.
