Last weeks outlook for increased volatility in the stock market "pressuring"
Trump.to conclude a deal with Iran ("the TACO") was correct, but the timeline was
much accelerated. The SPX was expected to rally to 7500-50 this week
before dropping to 7200-50 next week, but most of the action happened on Tue with
a rally to 7483 followed by a sharp drop to 7238 led by techs. This was
soon followed by an order of TACOs on Thur which sent the SPX back to 7400.
Headlines this weekend are that a US-Iran MOU agreement is expected next week
with Trumps tweets indicating as soon as Sunday is possible. If a MOU is
agreed on, the original target of SPX 7650-7740 is possible before a larger
decline as a "sell the news" event. A likely downside target would be SPX
7000 or lower as that was the start of the rally based on Trumps repeated
assertions that a deal is imminent, while negative reprecussions of the
war will likely take months to resolve.
Bearish sentiment fell for the most part with the ST Composite near a weak
Buy, the INT/LT Composite moving toward a weak Sell, and the ST/INT Composite
moving toward a strong Sell (FOMO callsl. SPX ETFs and options are showing
a significant drop in bearish sentiment.
Springheel Jack has an interesting
take on the current market where he sees a retest of ATHs before significant
downside, comparing the current market to the summer of 2008. However in
2008, there was only a 10% correction in the summer before slightly higher highs
in the Fall when the real fun began.
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 close to a weak Sell.
Update Alt EMA. Bearish sentiment fell to a weak Sell last week despite the
lower prices and increased volatility.
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 fell toward a weak Buy.
Update EMA. Bearish sentiment fell closer to neutral.
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 fell to a strong Sell.
Update FOMO calls. Bearish sentiment remains between a weak and strong 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 close to a weak Sell.
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 from a near stong Sell to a near weak Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment remains just below 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 dropped sharply
from neutral to 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 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 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
June 18. 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 7431, options OI for Mon is moderate with BE near current
levels. Call resistance starts at 7500 and put support at 7300
Wed SPX OI is small/moderate and has similar sentiment to Mon, but a slightly lower
BE.
For Thur June 18 AM MnExp, very strong SPX OI shows a much lower BE at 7205, but
is unlikely to effect prices unless the SPX is < 7400 with the possible Iran
deal
For Thur June 18 PM MnExp, SPX has strong OI where much of the call $OI is at
the 7k strike so good put support at 7350 and 7400 will likely hold prices.
Also there is little call resistance over 7500.
For Tue June 30 EOM, strong SPX OI has sumilar sentiment to Thur, but there is
little put support until 7300.
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 a weak Buy at + 1.5 SD, NQ (NDX)
moved to neutral at 0.0
SD, YM (DJIA) moved to 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
2026
2025
2024
2023
2022
Other Indicators
Conclusions. To say that Trump is like the boy who cried "wolf" is
an understatement as this is at least the fortieth time that I have heard that a
deal with Iran is imminent, but with oil near $80/bbl (WTI) the
probability looks pretty good this time. For the stock market which has
been climbing the "slope of hope" for.the last couple of months,"a deal" is much
more lkiely to be viewed as a profit taking opportunity than a reason to
increase long term investments.
Weekly Trade Alert. The next two weeks are likely to retest/best
ATHs before a possible 10% correction. Updates @mrktsignals.
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