Despite much of the recent economic data which indicated a slightly improving
economy, the Fed decided to give traders what they wanted and cut the Fed funds
rate by a full half pt on Wed. However, following the knee jerk move
higher to a new SPX high around 5690, a "sell the news" did follow down to 5620,
but Thur gap open quickly pushed the SPX over the 5700, reaching a high just
over 5730. Over the past several int rate cycles,
an initial rate cut of 0.50% has not been bullish for the next several years
since it has indicated a deeper recesion ahead, but this time I am inclined to
agree with Trump that this may be politically motivated as the establishment
seems to be willing to do anything to prevent a second term by Trump.
A couple of the ST/INT indicators (VIX call indicator and hedge spread)
dropped to a weak Sell last week which may indicate a choppy period ahead for
late Sept-early Oct., but SPX options OI is indicating support starting around
SPX 5650, so losses may be limited. The SKEW (OTM put premiums) has been
on a tear recently, reaching the 170 level which was last seen July 2021 or 6
mns before the Jan 2022 top.
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 to the weak Sell level.
Update Alt EMA. Bearish sentiment dropped to the weak Sell
level.
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 dropped welll below neutral, but above a weak Sell.
Update EMA. Bearish sentiment VST (grn) rose back above neutral from a weak
Sell early in the week and may support a couple of positive days.
The ST VIX calls and SPXADP indicator bearish sentiment dropped sharply to a
weak Sell.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%)
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 sharply mid-week with strong FOMO (call
buying) pushing sentiment to a strong Sell before bouncing Fri.
Bonds (TNX). Bearish sentiment remains at extreme low levels.
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 pulled back toward a strong Buy from more extreme
levels.
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 below neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment fell below neutral to a weak Sell,
indicating a pickup in volatility is likely ahead.
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 remains near
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 retreated to just below 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 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 Sept 27 & EOM. A text overlay is used for extreme OI to improve readability,
P/C is not changed. Also, this week includes a look at the GDX for Dec exp.
A new addition is added for OI $ amounts with breakeven pts (BE) where
call & put $ amounts cross.
With Fri close at SPX 5703, options OI for Mon is small with call resistance at
5700 and over with some put support at 5650.
Wed SPX OI is very small but large call resistance at 5675 may cause weakness
mid-week toward that level.
For Fri stronger SPX OI is generally negative toward 5650, but put positions at
5700 & 5750 may limit downside.
For Mon 30th EOM strong SPX OI is definitely more negative showing a strong bias
toward 5650.
Using the GDX as a gold miner proxy closing at 40.5, positive delta hedging over
40 may keep prices around 41.
Currently the TLT is 98.8 with the TNX at 3.73%, and strong call resistance over
100 is likely to keep prices near current levels..
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 is
neutral at +.0 SD, NQ (NDX) is a weak Sell at -1.5 SD, YM (DJIA) is
neutral -0.5 SD. Note updates are Tue, so may be out of date.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. The Fed last week showed that they are willing to be
accommodative as possible to avoid any last minute hiccups before the election.
Betting odds are now favoring Harris over Trump and one
data analyst from Northwestern (no J/S) who correctly predicted the 2020 outcome
thinks there could be a landslide.
Weekly Trade Alert. The next several weeks prior to the election
could be choppy with near term weakness into month-end early Oct to SPX mid, low
5600s.. Updates @mrktsignals.
Last week was expected to continue a positive bias into next weeks FOMC to
the SPX mid-5500s . However, after the recent lows around SPX 5400 were
tested Wed AM on stronger than expected CPI and a weaker than expected Trump
debate, stock markets surged on outlook for NVDA AI module demand. For the week the SPX ended up over 200 pts to the 5620-30 area.
Last weeks rally moved the ST sentiment indicators (ST, ST/INT Composites,
hedge spread) back to neutral so there may be a "sell the news" with the FOMC
with only a 0.25% rate cut.
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 remains in a tight range below
neutral.
Update Alt EMA. Bearish sentiment remains in a tight range below 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 continued to rise early in the week and remains
above neutral.
Update EMA. Bearish sentiment retreated from a weak Buy to just above
neutral.
The ST VIX calls and SPXADP indicator bearish sentiment moved from above neutral,
to just below neutral.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%)
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 reversed sharply from the weak Buy area back
to 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 via ETFs increased sharply even as HUI pushed to
new highs, indicating that more gains are likely.
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 decreased from above to below neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment retreated back to neutral from a weak
Buy.
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 retreated 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 remains just 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 is little changed.
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 20 & EOM. 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.
With Fri close at SPX 5626, options OI for Mon is small with a weak negative
bias below 5630.
Wed has smaller OI where SPX has stronger call resistance at 5625 & 5635,
extending down to 5600. An FOMC disappointment (only .25% rate cut) could
send prices to 5600 or lower.
For Fri AM strong SPX OI call bias ($ITM) could pressure prices toward 5550.
For Fri PM strong SPX OI call bias ($ITM) could pressure prices toward 5550.
For Mon EOM stronger OI put support at SPX 5550 should limit losses.
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 is
neutral at +.0 SD, NQ (NDX) is a weak Sell at -1.5 SD, YM (DJIA) is
neutral -0.5 SD. Note updates are Tue, so may be out of date.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. Last weeks iSPYETF
discusses the last several months as a 4th wave and looks at a couple of high
correlation periods in the past that may be taking a look at.
Weekly Trade Alert. Sentiment appears to be setup for a "sell the
news" FOMC outcome with only a 0.25% rate cut with a downside target of SPX
5550-5600. Updates @mrktsignals.
I picked the wrong week to delay the 2000 analog charts (see Tech/Other).
Both the ST Composite (strong Sell) and VIX call indicator (weak Sell) were
warning of problems in Sept and although the expected "pop" late Aug was weak,
the Sept "drop" was not, with a greater that SPX 200 pt drop last week. If
the 2000 analog continues to play out, a drop to SPX 5250 by EOM is possible,
but a surprise election turnaround also looks likely.
Bearish sentiment, particulary the ST Composite, ST/INT Composite and VIX
call indicator are no longer at Sells, but are likely to require more work to
generate stronger Buys.
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 remains just below neutral.
Update Alt EMA. Bearish sentiment remains just below 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 improved sharply from just below a weak Sell to
neutral.
Update EMA. Bearish sentiment improved sharply from just above a weak Sell
to a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment improved sharply from
a weak Sell to neutral.
The ST/INT Composite indicator (outlook 1 to 3 months) is based on the Hedge Spread (48%)
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 from the ST/INT Composite continues to shine,
reversing from a strong Sell to a weak Buy.
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 Has recently moved back to a strong Buy with
weakness in the HUI.
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 improved to just above neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment improved from near a weak Sell to a weak
Buy.
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 fell slightly.
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 rose from just below a weak Sell to just above.
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 back toward neutral.
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 13. 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.
With Fri close at SPX 5408, options OI for Mon is moderate, but puts are so far
ITM there is likely to be little effect.
Wed has smaller SPX OI, but puts are so far ITM there is likely to be little
effect.
For Fri SPX has moderate OI, but puts are so far ITM there is likely to be
little effect.
IV. Technical / Other
This week I wanted to take a look at several charts comparing the dot-com top of
2000 to 2024. It would have been more helpful last week but seemed to be
hard to believe at the time. The first chart is the ratio of the DJIA
($INDU) to the SPX from the late 1990s. Here the MV wtd SPX is considered
representative of techs with a diff of .02, 6.948 in Mar 2000 vs 6.968
July 2024.
Next is a look at what happened after the Apr 2000 top. After a small
correction for about two weeks, there a near vertical drop for about a 15%
total correction. After that there was a sharp recovery rally of about 10%
over a two week period, followed by a one week consolodation. Next a
retracement of about 80% of the late Apr rally occurred over the following month
as an ABC decline. Compared to 2024, this means that Sept could see a
decline of about 400 pts or 5250 by EOM, The first leg down could be about
67% or about 5320 before a sharp B-wave rally (FOMC) and a final C-wave decline
into EOM. At that pt focus is likely to shift to the election and a
positive outlook is more likely with a Trump victory. A couple of news
items favoring a positive outlook just came out with Trumps "hush money"
sentencing delayed until after the election when Trump can pardon himselt, as
well as Trumps goal to start a soverign wealth fund for the US (just as
valuations are at ATHs). This would put the ATH retest aroung Dec.
This is what happened last week for comparison. Sorry I wasn't able to
update a week sooner.
And this is what happened for the next 18 mns.
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 is
neutral at +.0 SD, NQ (NDX) is a weak Sell at -1.5 SD, YM (DJIA) is
neutral -0.5 SD. Note updates are Tue, so may be out of date.
Click dropdown list to select from the following options:
Tech / Other History
2024
2023
2022
Other Indicators
Conclusions. It looks like September is well on its way to earning
its reputation as the worst month of the year. Next week is CPI/PPI week
and will likely be the final key to the Fed's puzzle as to how much to cut
rates.
Weekly Trade Alert. Using the 2000 analog, a drop to SPX 5320ish is
likely before an FOMC rally. That rally could reach as high as SPX 5550
before the final leg down. Updates @mrktsignals.
