Last week was a miss with no positive effects on stock prices (SPX) even
though oil prices continue to fall under $70/bbl (WTI). A couple of weeks
ago the potential for increased NDX volatility due to the SK KOPSI
and a Tue O/N (US) KOPSI crash of 10% was followed by a nearly 1,000 pt drop in the US
NDX and a 2% drop in the SPX to the low 7300s, just below the 50 day SMA.
In spite of increased volatility, closes for the SPX continued to hover in a 11
pt range from 7354-65 Tue-Fri near the 50 SMA. SPX OI for the June EOQ and
July 4th shortened week indicate that prices are likely to rally back to 7450
for the week. A possible ceasefire between Irael and Lebanon indicates the
potential for LT peace in the ME even though the US and Iran continue to
exchange "friendly fire".
While bearish sentiment for the ST Composite remains near a weak Buy, a sharp
increase in hedging with the Hedge Spread at a weak Buy VST supports higher
prices next week. A more worrisome turn in sentiment is from the
NAAIM survey of investment managers
which saw a jump in the Exposure Index to 98.6, matching the May 27 98.4 before
a 4 day rally of about 100 SPX pts then a 5% decline into mid-June. A huge
negative swing in ES sentiment (COT section) seems to support the negative INT outlook.
Discuss.
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 higher toward neutral.
Update Alt EMA. Bearish sentiment moved significantly higher from a weak
Sell to neutral.
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 remains just below a strong Buy.
Update EMA. Bearish sentiment moved down from a strong to weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment remains below 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 rose from a weak Sell to around neutral.
Update FOMO calls. Bearish sentiment moved up toward a weak Sell.
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 near a weak Sell. With gold near
$4000/oz, a drop close to $3000 is possible for the LT target for HUI of ~500.
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 to a weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment jumped from a weak Sell to a weak Buy
VST (grn) and neutral INT/LT.
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 halfway to
neutral from 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 near 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 remains near 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 July 2. 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 7354, options OI for Mon is moderate with a high $P/C and a
BE at 7435. Straddle at 7400 looks like a possibility.
For Tue (June EOM) strong SPX OI has a modest positive bias toward BE at 7400.
Wed has small SPX OI with few ITM calls and a positive bias toward the put
straddle at 7450.
For Thur (Fri holiday), SPX OI is moderate with ITM puts indicating a bias
toward the 7450+ area.
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 saw a
huge drop from a Buy at + 1.5 SD to neutral at -0.25 SD, NQ (NDX)
remains neutral at +0.15 SD, YM (DJIA) nearer to a weak Sell at -0.75 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
2026
2025
2024
2023
2022
Other Indicators
Conclusions. Much of the weakness in techs seemed to be a result
of increasing cost pressures such as AAPL's decision to raise product prices to cover
the soaring cost of memory and increased cost competition of the lower cost
Chinese AI models using DeepSeek which offer a 90% or more cost advantage with a
performance lose of 20% or less. The AI race is starting to look like
modern warfare where one side uses $2.5M Tomahawk missiles and the other side
uses $3000 drones.
Weekly Trade Alert. Sentiment similarities to late May indicate a
possible SPX 100 pt upside into July 4th holiday (SPX 7450) followed by a
possible 5% decline into mid July (~SPX 7100). Updates @mrktsignals.
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