Does the January Effect Mean Anything?

Last weeks outlook for a Bradley turn Jan 19th and a downside target was prescient with a target of SPX 6750-6850 (act 6786), but the move seems to be forming a triangle with lower highs and higher lows, so difficult to trade.  Next week is FOMC week and the fed fund futures from the CMEGroup are indicating a 97% probability of "no change", so a modest pullback is likely.  Discounting Trumps occasional rants such as the latest, a threat to impose a 100% tariff on all Canadian imports if Canada reduces tariffs on imported Chinese EVs for a tariff reduction on exported canola oil to China and a 200% tariff on imported French wine if Macron does not contribute $1B to Trumps favorite slush fund for a seat on his "Peace Board".  Another risk is SCOTUS on tariffs, but I am beginning that there may be a split decision where trade specific tariffs with US trade may be OK, but other punitive tariffs such as those listed above are not. So Trump/tariff risks aside, the CMEGroup outlook indicates a possible path to a 10% correction into May since no Fed rate cuts are expected until June.  Lows would then be expected into the mid-March and late April FOMC for a 5-wave decline to about SPX 6500, then a summer rally toward the mid-term election.

The quick, but sharp, decline and recovery did little to change sentiment.  The ST Composite did reach a weak Buy early in the week, but retreated back toward neutral by EOW.  Other indicators improved slightly.  SPX options OI is indicating a fairly mild week with some downside to/below SPX 6900 mid-week and a late week recovery.  The Feb monthly SPX OI continues to show a possible ATH retest by Feb 20, and with NVDA EPS on Feb 25, a repeat of the Nov 2025 reversal is possible.

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 moved to neutral early in the week, but fell back to mid-way to a weak Sell by EOW.

Update Alt EMA. Bearish sentiment moved to neutral early in the week, but fell back to mid-way to a weak Sell by EOW.

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 moved to a weak Buy early in the week, but closed below by EOW.

Update EMA. Bearish sentiment moved to a weak Buy early in the week, but closed below by EOW.

The ST VIX calls and SPXADP indicator bearish sentiment moved above neutral, but well short of a weak Buy.

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 increased slightly but remains below a weak Sell.

Update FOMO calls. Bearish sentiment bounced then fell back to in-between a weak and strong Sell.

Bonds (TNX).  Bearish sentiment remains at low extremes as rates continue to creep higher.

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 on a strong Buy.  A triple since Trump took office in Jan 2025 vs a double for NDX in 6 mns in 1999, futures (Tech/Other) for gold (GC) has opposite sentiment.

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 slightly.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment is mostly unchanged at 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 remains halfway between neutral and a weak Sell.

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  remains halfway between neutral and 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 fell to 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 30. 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 6915, options OI for Mon is moderate with a positive bias to 5k puts at 6925, put support is 6840 and call resistance is 7000.

SPX options OI for FOMC Wed is small with a negative bias to BE at 6900 with call resistance at 6950 and 7000.  Little 6850 put support until could mean some downside volatility.

SPX options OI for Fri EOM is large with a slight positive bias to BE at 6930 and put support at 6900, call resistance at 6950, and a moderate straddle at 6930.

SPX options OI for Fri Feb opt exp is large and a positive bias toward 6980 due to large straddle at 7000.

IV. Technical / Other

This week I wanted to take a brief look at the Combined Put-Call Revised indicator (Equity + ETF + SPX), .

The SPX ST, 1-hrly, .

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 neutral + .15 SD, NQ (NDX) moved above a strong Sell at -1.75 SD, YM (DJIA) moved above neutral at + .1 SD.   A quick look at gold (GC) shows a strong Sell at -2 SD.

Click dropdown list to select from the following options:

Tech / Other History
2025
   12.27 A look at the China SSEC stock index vs gold for seven years.    09.27 LT NYSE Adv/Dec volume and Rydex 3x Bull/Bear indicators at levels of prior INT tops.    05.09 NAAIM LT and Rydex 3x Bull/Bear indicators approaching bulish extremes.    05.02 The strong breath Adv/Dec volume may not be all positive, aka late 2015.    04.19 An SPX 2022 bear market analog and an update of the LT NAAIM Index.    04.12 How golbalism has effected foreign purchases of US debt since 1980.    04.05 A comparison to SPX 2020 covid crash and a look at LT NAAIM Index.    03.29 Corporate profits to GDP since 1980 show strong growth from globalism.    03.22 A comparison to Trump 1.0 trade war results for the SPX.    03.15 Update of Technical Indicator Composite & SKEW plus VIX term structure.    01.25 Update of NYSE Adv/Dec volume now at Sell level & SKEW shows warning of INT top (1-3mns).
2024
   12.15 Comparison of NYSE Adv/Dec volume lows to peaks in SKEW shows ST (1 month) warning of INT tops.    12.06 High peaks in SKEW since 2018 have been early warning of INT tops as sign of "max" options bearishness.    09.07 A look at DJIA/SPX analog from the 2000 market top shows possible strength into year-end.    05.25 A possible rounded top aka May 2015, Initial Claims lead Unempl Rate, LT NYADV/Dec warning.    02.17 A potential analog to early 2007 with early Spring and Summer pullbacks before Fall rally.    01.13 A look at LT SPX P&C, very high volume may compress range to 4650-4850 for mns, current Sell.
2023
   12.23 A quick update to the DJIA infl adj comparison presented as a possible analog Dec 2022    12.08 A look at the Feds recession indicator based on the unemployment rate using the Sahm Rule    10.21 A comparison of 5 year periods (1960s, 90s & today) for inflation and int rates (Fed funds & TNX)    09.29 A ST trend for TNX, INT/LT COT bearish for bond futures (TN), LT 20/30 yld curve    09.22 A look at Dow Theory and a DJIA diagonal and possible similarities to late 2015    09.15 Use of Brave browser Shield for enhanced internet access to some sites    07.22 A closer look at the 1966-74 markets indicate marginal new ATHs likely around 2024 Pres election    07.08 TNX since 2020 shows bounce likely temp w/ more back&fill before rounded bottom completes    07.01 Sentiment for BKX is at warning levels, Barcharts ES sentiment is now neutral.    06.24 Another update to VIX call indicator using VIX P/C; how volatility (VIX) effects options pricing    06.17 OTDE Volume & Put/Call Ratio Drilldown - low volatility (VIX) ahead    06.10 Volatility indicators warning of a nearing top    05.20 A review of indicators that performed well in 2015s rounded top    05.13 Comparing the VIX term structure (VIX/VXV) and volatility ratio (VIX/VVIX)    05.06 A review of the current int rates (TNX), unemployment and CPI compared to the 1960s    04.29 Addressing the negative M2 growth misconception, adding Barcharts ES outlook    04.15 Several LT/INT indicators show INT gains likely (SKEW&VIX/VXV,VIX/VVIX,BPSPX&SPXADP)    03.25 Comparison of PCE inflation and TNX rates to late 1990s indicates possible tech meltup    03.18 Strong SPX volume at Mar optn exp supports Spring rally of 10%+    03.11 Low SPX P/C ratio indicates likely trading range    03.04 LT T-bonds (10/20yr) => more Fed tightening, LT NYSE Adv/Dec volume => possible ATH retest    01.28 SPX correlation w/liquidity, Fed bal sheet - Treasury Gen Acct - O/N reverse repo    01.14 Volatility indicators, ST VIX calls indicate pullback SPX 200 pts, INT/LT SKEW & VIX/VXV still bullish    01.07 Gold performance relative to int rates (TNX), and China stock market (SSEC)
2022
   12.24 Late 1960s analog, TNX,Unempl & CPI => Recession 2024-25, DJIA top Feb'66 retest late '69    12.17 A contrarian view to the consensus 2022H2 recession & bear narket low of SPX 3000    12.10 Yield curve inversion (since 1980) not perfect recess indicator compared to inflationary 1960-80    11.26 Sentiment indicators showing a sharp drop late Dec as a setup for a strong Spring rally    11.19 Sentiment indicators showing choppy move higher likely before pullback    11.05 Using the SPXADP with the VIX call only indicator improves effectiveness

Other Indicators
   U.S. 10 Year Treasury Note (TNX Rate), Futures, Extended Hours    ES (S&P 500), Futures, Extended Hours +    NDX (NASDAQ 100), Futures, Extended Hours    Marketwatch Economic Release Calendar    INT/LT Rydex 3x Bear/Bull Fund Ratio    INT/LT NYSE Up/Down Volume 100 & 200 DMAs    S&P 500 Historical Charts with Inflation Adjustment    DJIA 100 Year Historical Charts with Inflation Adjustment

Conclusions.  Jan opened at the SPX 6900 level, but other than the second week's test of SPX 7000 (6985) that was quickly reversed, there is little to show for the month.  Partially, this is due to a POTUS that acts like a 5 year kid that doesn't get everything that he wants immediately and throws a temper tantrum.  However, the mega techs continue to underperform with the NDX still 2% below the late Oct high and there seems little chance of new leadership other than the precious metals.  Oil prices have continued to creep up at $61/bbl or +10% and that may start to push inflation higher.

Weekly Trade Alert.  Possible up, down, up week in a tight range around the current SPX 6915 (+/- 35 pts).  Updates @mrktsignals.

Investment Diary,  Indicator Primer, Tech/Other Refs,
 update 2021.07.xx  Data Mining Indicators - Update, Summer 2021,
 update 2020.02.07 Data Mining Indicators,
 update 2019.04.27 Stock Buybacks,
 update 2018.03.28 Dumb Money/Smart Money Indicators

Article Index 2019 by Topic, completed thru EOY 2020.02.04
Article Index 2018 by Topic
Article Index 2017 by Topic
Article Index 2016 by Topic

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