If Trump Runs Out of TACOs, What's Next?

Last week was definitely more volatile than expected due to the tech selloff noted below with a drop to 7314 Wed before a sharp turnaround Thur/Fri which made it back to the target of SPX 7500 (high 7509, close 7490).  SPX OI is indicating a consolidation the next two weeks between 7450-7500, but are likely to face a tug of war between a recovering tech sector and continued escalation in the Iran war.

Several weeks ago on June 6, I had indicated a potential analog in the SK KOPSI Index to the 1999 top in the NDX where both indices had doubled in six months and a warning of negative effects for the current NDX.  As turns out, I was a little early as a higher high was reached after a 10% correction two weeks later at 9050.  However, last week the KOPSI bottomed below 5300 for a 44% crash in 6 weeks.  This compares to a 40% crash in the NDX between Mar and May of 2000.  A full comparison to the current stock market and what it might mean going forward are contained in the Tech/Other section.

Overall, bearish sentiment remains neutral to slightly positive ST, but neutral to modestly negative INT/LT.

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 dropped below neutral, halfway to a weak Sell.

Update Alt EMA. Bearish sentiment  dropped below neutral, halfway to a weak Sell.

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 reversed down from a weak Buy.

Update EMA. Bearish sentiment was overstated last week and remains below a weak Buy.

The ST VIX calls and SPXADP indicator bearish sentiment remains near 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 slightly but remains halfway between neutral and a weak Sell.

Update FOMO calls. Bearish sentiment rose to a weak Sell.

Bonds (TNX).  Bearish sentiment continued to fall as rates rose toward 4.75%.

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 fell toward a weak Sell as prices remained over 600.

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 sharply from a strong Sell to a weak Sell.

With the sister options Hedge Spread as a ST/INT indicator (outlook 1-3 mns), bearish sentiment fell slightly 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 rose, but remains near 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 just below 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 rose slightly toward a weak Buy.

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 Aug 7. 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 7490, options OI for Mon is small/moderate with call resistance over 7500 and put support below 7425.  BE at 7455 indicates a modest pullback is likely.

Wed has small SPX OI where there is little near put support and call resistance over 7475.  BE at 7475 indicates a possible range of 7450-7500.

For Fri moderate/strong SPX OI shows strong put support at 7400 and call resistance over 7500.  BE at 7475 is a likely target.

For Fri Aug 21 AM strong SPX OI indicates a target of 7500 due to the large straddle there.

IV. Technical / Other

This week I want to follow up on the NDX 2000 crash to the SK KOPSI 2026 analog.  The NDX peaked late Mar 2000 at 4816 and over the next 8 and a half weeks dropped 40% to 2897 then rallied for the next 3 months to recoup about 67% of the losses into late Aug to 4187.  Over the next 18 months a decline of about 75% occurred to the final bottom of 1089.

This is wave 1 and wave 2 of the NDX 2000 crash where the recovery (wave 2) lasted about 7 and a half weeks with the majority of the recovery in week 1.

Looking at the SK KOPSI analog in 2026, the decline was both sharper and shorter with a decline of 44% over a 6 week period.  So far the recovery has also been sharp and the initial leg up may conclude next week with a comparable target  (50%) of about 7300 and ultimately (67%) at 8000 in about 6 weeks (adjusting for shorter decline period).

Comparing the potential KOPSI recovery to what this could mean for the SPX, this could mean a recovery high mid-Sept (FOMC rate hike?), possibly at a new ATH (7600+).  From a TA perspective this would be an irregular H&S top (hump back) with lower head than shoulders.  From an EW perspective, on Fri PretzelLogic identified a move over SPX 7482 as invalidation of the possible triangle, setting up a running flat to an ATH.  The TA H&S then implies a move down in 2026Q4 as warned last week to at least fill the gap at SPX 6600-6750 or even 6300 or lower.

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 near neutral at -0.35 SD, NQ (NDX) remains neutral at -0.3 SD, YM (DJIA) remains a weak Sell at -1.25 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
   04.18 NYSE Adv/Dec Volume remains weak, potential analogs to 2008 and 2018    04.25 NYSE Adv/Dec Volume, in depth look at 2017 meltup and expanding wedge
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.  Trump is quickly approaching the point of no return with his strategy of "escalate to deesclate" in the war with Iran.  With the war now in its 5th month and only three months to the election, a continuation of the current strategy shows little chance of success and risks major setbacks in Congress in Nov.  Delivering a "knockout blow" also seems unlikely since by all accounts resistance has been "completely obliterated", but still manages to strike back.  Risks are also rising in the stock market as wider conflicts in the middle east and dwindling petroleum reserves threaten higher inflation and interest rates for longer.

Weekly Trade Alert.  A trading range, perhaps SPX 7450-7500, is likely depending on ME escalation.  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
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