Last week was difficult as stocks continued to be buffeted by news about the US
vs Iran war. The SPX initially rallied to start the week for the third
week in a row, pushing to the Mar 20 SPX 7k straddle B/E at 6750 then started to
selloff with a loss of about 2% thru Wed as the negative delta hedging seemed to
be in play. Thur saw a pause, but Fri was a washout breaking the Nov low
at SPX 6520 down to as low as 6450 before a 6509 close. The Bradley turn
date of Mar 20 did appear to be a low and fit into the Trader Joe's
expanded triangle/flat count from Mar 8.
From his Mar 20 post, this completes the B-wave of an ABC up from the Apr 2025
lows and C up may take several months to a high of about SPX 6900-7100.
Interestingly, there is an even bigger SPX straddle for the Jun 19 monthly exp
at 7k with about 250k P&C each, could be a major top.
From a longer term perspective M. Armstrong (here,
here) has been talking about a war cycle
from 2026-28 for several months now where 2026 is expected to be the pivot
(top), 2027 is the volatility (large down move) and 2028 the panic year (low).
This is similar to 2007-2009 as well as 2000-2002.
The longer term cycle does seem to fit in with what the LT sentiment is showing.
Most ST and INT sentiment indicators are similar to the levels of
April/Nov 2025 that could support Trader Joe's expanded triangle count as a
B-wave low, but markets are still very dependent with the day to day outcomes of
the war with Iran and especially the price of oil. A price range of
$90-95/bbl for WTI crude is supportive but if over the $100/bbl level the
expanded flat and low SPX 6000's is more likely.
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 reached Buy level but lower than Apr
2025 and similar to Nov 2025.
Update Alt EMA. Bearish sentiment reached Buy level but lower than Apr 2025
or Nov 2025.
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 pulled back from a strong Buy.
Update EMA. Bearish sentiment remains in between a weak and strong Buy.
The ST VIX calls and SPXADP indicator bearish sentiment pulled back to 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 continued higher to a weak Buy VST (grn) based
on the hedge spread (strong ETF P/C).
Update FOMO calls. Bearish sentiment remains near a weak Buy.
Bonds (TNX). Bearish sentiment remains at low extremes as the
stronger inflation outlook pushed rates over 4.3%. 4.5% is an important
level to watch.
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 continued to fall sharply to a weak Sell.
DUST is now up 50%, but more importantly the recent blowoff in HUI (300+ to
900+) was similar to the 2019-20 runup (100+ to 300+) which was followed by a 3
year consolidation (about -68% of up move).
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 is little changed, remaining just below neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment pushed sharply higher, reaching a strong
Buy VST (grn) before falling back to just below a weak Buy.
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 moved just above
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 was pushed higher by ETF puts & calls (similar to Apr 2025)
reaching a weak Buy.
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 moved well above a weak Buy and the highest since
late 2023.
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 Mar 27. 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 6506, options OI for Mon is moderate with strong put
support in the 6400-50 area. Little call resistance until 6700.
Wed SPX OI is small but has put support at 6325 and 6575.
For Fri SPX OI is moderate with put support up to 6600 the 6650 and call
resistance at 6700. May reach 6650 if oil remains near $95/bbl WTI.
For Tue Mar EOM strong SPX OI with very strong put support at 6475 and moderate
up to 6600. Could see 6600+.
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 less positive at + 0.5 SD, NQ
(NDX) remains at a weak Sell at -1.0 SD, YM (DJIA) remains neutral at
0.0 SD.
A quick look at gold (GC), bearish sentiment is in-between a weak and strong Sell at -1.5 SD.
Click dropdown list to select from the following options:
Tech / Other History
2025
2024
2023
2022
Other Indicators
Conclusions. Trump seems to be trying to deescalate, but his
somewhat opaque attempts are being ignored by Iran. Unfortunately, blowing
up half of a country and then saying "I am ready to stop" is a lot different than
threatening to impose a 50% tariff in 30 days and then later saying lets make it
25% in 90 days. Iran continues to play tit for tat with Israel with a
recent attack on a nuclear power plant in Iran was answered with one on a Israeli
plant. A long range missile was even fired at a UK/US base in the Indian
ocean and remember Iran also has an unknown amount of hypersonic missiles that
remain unused.
Weekly Trade Alert. SPX prices may advance, albeit slowly, if oil
prices remain steady. A cease fire with Iran, although very unlikely,
would br much more positive. Updates @mrktsignals.
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