Last week was expected to see limited gains to SPX 7700 thru EOM with
possible mid-week weakness and Mon started off with a bang after Trump touted
more negotiations with Iran which sent oil tumbling, but the big driver of an
SPX 130
pt gain was the 11% gain in META with the release of Muse, its AI assistant keyed
into online shopping. Wed/Thur did see weakness as Iran's deal turned out
to be a false flag with an SPX 100 pt drop, before Fri bounce back to 7740.
This weeks SPX OI continues to show a bias toward the 7700 level with PCE
inflation on Wed and the Sept Jobs report on Fri. A quick look for Oct
monthly exp on the 16th, however, shows a BE at 7870 due to a huge straddle at
8k, so something like an EW ending diagonal may be possible.
Bearish sentiment declined somewhat with last weeks rally, but the ST
Composite remains over a weak Buy and the VIX call indicator remains positive
but below a weak Buy. The INT/LT Composite and ST/INT Composite have moved
to weak Sells based on the low ETF P/Cs which also moved the Hedge Spread to a
weak Sell. FOMO calls remain neutral. A trading range, perhaps 7675-7775 is expected for the week.
Thru mid-Oct exp week an EW scenario consistent with the SPX OI outlook is an
ED taken from another site (extend
time frame). But more troubling LT are the
NYSE ADLINE which looks a lot like
late where a lower ADLINE with an SPX ATH spelled trouble, as well as the
TRANS index where 2025-26 seem to be
repeating 2021-22.
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 back to a weak Sell.
Update Alt EMA. Bearish sentiment dropped from near neutral to near 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 spiked above a strong Buy on previous Fri and remains over a
weak Buy.
Update EMA. Bearish sentiment has fallen from the previous weeks strong Buy
to a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment fell below 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 fell from above a weak Sell halfway to a
strong Sell.
Update FOMO calls. Bearish sentiment remains just below neutral.
Bonds (TNX). Bearish sentiment remains at low extremes although
TNX rates broke over the 5% area at one time up .25% for the week.
Next weeks PCE inflation and jobs data could be problematic if rates rise toward
5.5%.
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 as price hovers around the 800
level.
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 remains halfway between a weak and strong Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment retreated sharply to 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 rose sharply from
a weak Sell toward 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 fell back to a weak Sell as ETF P/Cs fell.
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 back to a weak Sell as ETF P/Cs fell.
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 Oct 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 7743, options OI for Mon is moderate with a slight
negative bias due to ITM calls and a BE at 7710. Call resistance over
7750.
Wed SPX OI is large with BE also at 7710, could remain in range of 7700-50.
For Fri SPX OI is moderate/large with BE at 7700 and low $P/C, likely close near
7700.
For Fri Oct 16th AM SPX OI is large with another huge straddle at 8K and a BE
at 7870. Smaller straddle for Sept (~100k) with BE at 7675 resulted in a
Tue swing low near 7500 and a Fri open near 7650. Perhaps TACO week.
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 moved
closer to a weak Buy at +0.75 SD, NQ (NDX) close to a strong Sell at -1.75 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 -1.75 SD.
Click dropdown list to select from the following options:
Tech / Other History
2026
2025
2024
2023
2022
Other Indicators
Conclusions. The biggest surprise in this weeks sentiment by far
was the Oct monthly exp OI. The last two weeks I had been pounding the
table about rising int rates and was planning on pointing out the Mon Oct 19 was
the 39th anniversery of 1987's Black Monday where rates had also risen sharply,
but the SPX OI seems to indicate a bearish consensus. Perhaps Trump still
has a few TACOs left.
Weekly Trade Alert. Next week is expected to see limited weakness
into Fri with an SPX range of 7675-7775. Updates @mrktsignals.
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