The calls the last two weeks were correct for direction (up for Xmas, down
for New Years) based on the SPX options put/call bias but extended beyond
expectations. Last week a drop to SPX 6850-75 was expected from the 6930
level and the intra day low Fri was 6824 with a 6858 close with options OI most
effective for the close. Next week is expected to be up with hte Dec jobs
report Fri. Recent initial claims for unemployment and recent ADP reports
have rebounded from earlier weakness, and a positive report may cause short
covering toward SPX 6900.
After several months of almost no change in sentiment measures, bearish
sentiment is now dropping sharply. SPX 2X ETF and SPX options sentiment
have dropped to levels seen at the Jan 2025 lows just before a final rally into
the late Feb high. The largest change in sentiment was in the futures
(Tech/Other) where DJIA sentiment (YM) had been near a weak Buy and SPX (ES) was
positive, but both dropped to neutral or lower
Trader Joe
outlined a couple of ES/SPX options Thur that indicated a possible top this
month, but SPX ETFs and options indicate late Feb to mid-Mar as more likely.
The INT/LT Composite remains at a weak Sell, ST Composite dropped below
neutral, ST/INT Composite remains below a weak Sell, and FOMO call indicator
continues to drop toward a strong Sell.
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 near a weak Sell.
Update Alt EMA. Bearish sentiment continues to hold near a weak Sell with LT
sentiment declining.
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 continues to move lower, now below neutral.
Update EMA. Bearish sentiment improved slightly to neutral late in the week.
The ST VIX calls and SPXADP indicator bearish sentiment rebounded toward
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 rebounded from a strong Sell VST (grn), but
remains below a weak Sell.
Update FOMO-calls. Bearish sentiment continued to fall from strong call buying,
well beyond a weak Sell from just above.
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 remains at a strong Buy as my comments on
correlation with China's SSEC seemed to trigger a strong reaction Mon.
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 near a strong Sell with LT sentiment
declining. DM/SM sentiment continues to track the
AAII Survey where weekly Bearish
sentiment fell 20% thru Wed.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment rose from above a weak Sell toward
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 continued to fall
below a weak Sell with SPX options sentiment (grn,purple) similar to Jan 2025
before a final rally.
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 is little changed at just 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 is slightly lower at below 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 Jan 9. 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 6858, options OI for Mon is moderate with a bias upward
toward BE at 6890.
Wed has small OI where SPX again has a bias toward 6890.
For Fri jobs report moderate options OI shows put support between 6800 and 6850
with call resistance beginning at 6900. Buas to BE at 6895.
For Fri Jan 16 AM strong SPX options OI has a bias to BE at 6925 bolstered by
the straddle at 7000. Here's what Google's AI says about the
straddle..
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 dropped
sharply to neutral + .1 SD, NQ
(NDX) improved, but remains at a strong Sell near -2.0 SD, YM (DJIA) also
dropped sharply to neutral - .1 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. Last weeks bounce at the Fri close may continue into
Jan option exp on the 16th, but the rally may be muted and fall short of the SPX
7000+ many are expecting, Next weeks target is 6890+ and 6925+ for exp
week. Largest put support is for Fri job report, so a positive surprise is
likely.
Weekly Trade Alert. Expecting continuing but mild upside from Fri
lows to SPX6890+. Updates @mrktsignals.
No comments:
Post a Comment