Last weeks SPX options OI was showing a negative bias to the mid 7600s before
a late recovery to near unchanged, but no guidance was given. As it turns
out, a flare up between the US and Iran caused a $10 spike in oil (WTC/bbl) from
$80 to $90 early in the week sending the SPX to an early low at 7611 on
increased Inflation fears, near the early Aug gap at 7610. Thur, however,
Fed head Waller indicated that he would consider the trend in the
CPI (core at
2.5%, less food and energy, see table) as supportive of no rate hikes and the SPX shot back
up to the 7750 area. It's interesting that the
PCE vs CPI inflation
debate is now in play and PCE was preferred while its inflation costs were
lower, but now that core CPI has dropped closer to the Feds 2% target and the
core PCE
remains near 3.5%, Trumps forces are pushing for use of the CPI. (Note: PCE is
more reflective of business costs, esp memory chips for data centers). A
continued downward trend in CPI on Sept 11th could determine the FOMC decision
Sept 16.
For the week the SPX ended up 7 pts, so last weeks no call was probably
correct given the unpredictable events which caused the volatility. This
weeks SPX options OI is showing more of the same is likely with early
weakness and a slightly higher close with Fridays CPI inflation data.
Sentiment indicators are by and large unchanged although the ST Composite has
slipped from positive to neutral. Simons ISPYETF
discusses sentiment outlook, including the now paywall NAAIM which has breached
the strong Sell level at 100. I have also been watching the
SKEW for a run to about 160 as an
indicator of high OTM put option premiums as smart money tends to buy OTM puts
prior to tops.
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 rose to a weak Sell.
Update Alt EMA. Bearish sentiment rose 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 declined to near neutral.
Update EMA. Bearish sentiment declined to neutral.
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 remains little changed above a strong Sell.
Update FOMO calls. Bearish sentiment remains near a weak Sell.
Bonds (TNX). Bearish sentiment remains at low extremes as rates
inched higher.
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.
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 at a strong Sell.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment is little changed just over 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 slightly 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 at 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 above a strong 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 Sept 11. 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 7719, options OI for Tue (Mon holiday) is moderate with a
BE at 7710 with put support starting at 7675 and call resistance above 7775.
Wed SPX OI is smaller with a large call position at 7825 and put
support at 7550 with little in-between. Vollatility likely with negative
bias to BE at 7680.
For Fri (CPI infl) SPX moderate OI shows positive bias toward BE at 7720.
For Fri 18th opt exp PM moderate SPX OI shows same bias to 7650 as AM from last
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 rose
above neutral at +0.2 SD, NQ (NDX) fell below
a weak Sell at -1.20 SD, YM (DJIA) remains a weak Sell at -1.5 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. So far stocks indicated in late July and early Aug
regarding the KOPSI bubble crash vs the NDX in 2000 and the LLM token costs have
proved prescient as there was expected to be a very sharp recovery rally for
about a week followed by a two month consolidation that could last thru Sept.
The decline in token costs for high price AI models due to low cost competition
has pressured most of the AI hyperscalers while NVDA continues strong due to
increased hardware demand with Fri advance 1 pt short of an ATH. From a LT
perspective the AI valuation model seems to have inherent flaws as discussed at
Phils Stockworld last week and last
weeks Thur AM problems which caused three of the major AI models to crash for
several hours could indicate operational problems as well.
Weekly Trade Alert. We could see a repeat of last week with
weakness into mid-week followed by a strong close with favorable CPI data on Fri
(see SPX OI). Updates @mrktsignals.
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