Last week was expected to show some weakness down to SPX 5675-5725, and other
than short-covering spurts late Mon & Fri and Fri gap open on the strong jobs
report, this proved accurate with a low Wed AM at 5674. Tue-Thur bounced
around between 5740 and 5674. Economic reports
continue to show strength which brings into question the future of further int
rate cuts by the Fed which seems to be ignored by the stock market but not by
the bond markets as the TNX rate has risen from 3.6% before the last FOMC to Fri
3.98%.
Bearish sentiment improved modestly for the week with the ST Composite
turning positive and the hedge spread moved up from a strong Sell.
Inflation data (CPI/PPI) comes out Thur/Fri and may remain benign helping the
SPX remain over 5700, but the recent 10%+ increase in oil prices will likely
increase inflation in future months if it sticks.
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 improved by rising above the weak
Sell level.
Update Alt EMA. Bearish sentiment VST (grn) rose from below neutral to above
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 rose mid-week, just touching a weak Buy, before
retreating EOW.
Update EMA. Bearish sentiment VST (grn) is near a weak Buy.
The ST VIX calls and SPXADP indicator bearish sentiment rose above neutral,
but closed right at 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 rose from near a strong Sell to a weak
Sell.
Bonds (TNX). Bearish sentiment remains at extreme lows.
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 dropped below a strong Buy, then bounced back with
as prices fell.
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 was little changed at just below neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment rose sharply from the strong Sell level.
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 rose modestly from the strong Sell level with an
improvement in ETF P/Cs.
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 above the weak Sell level.
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 July 16. 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 5751, options OI for Mon is moderate with a negative bias
below 5750. Put support is very small until 5650, but call resistance is
small above 5700, so only a modest price change is expected.
Wed has small SPX OI where there is also negative bias toward 5700.
For Fri SPX has moderate OI also with negative bias toward 5700.
For Fri AM exp week strong SPX OI shows a strong negative bias toward the
5650-5700 level.
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 -.10 SD, NQ (NDX) is a weak Sell at -1.5 SD, YM (DJIA) is
at a weak Sell -1.25 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 overall outlook was for a choppy price range for
SPX until the election and we certainly saw that last week. Next week may
see more of the same. The ME is turning more ominous and is now appearing
as an alternate "gray swan" with the threat of a direct conflict between Israel
and Iran. Biden obviously wants to put off a more serious conflict until
after the election, but if Israel fears the loss of US military support with a
victory by Trump, then an escalation of the conflict is more likely.
Weekly Trade Alert. An improvement in ST sentiment and stronger SPX OI
support may keep prices in a slightly higher range of SPX 5700-50 for next week,
but the following week may see 5650. Updates @mrktsignals.
Some strength was expected early in the week due to the VST ST Composite
sentiment, and it was delivered in spades with a surprise announcement of a
large economic stimulus package by China on Tue and reinforced with additional
measures Thur. China buys more from Europe, esp Germany, than from the US
and the DAX was up 6% while the SPX could only manage a 1% gain before giving
back about half by the close. The NDX continues to lag while the DJIA is
making new highs following 2000 analog outlined a couple of weeks ago. The
NDX did fill a gap at 20250 from mid-July before retreating back toward the 20k
level.
Trader Joe this weekend shows an expanding wedge
formation which targets the DJIA 43K+ before a 10%+ drop to about 38k.
This looks a lot like the setup starting to appear in the hedgespread and ST/INT
Composite (hedgespread + call FOMO) which we saw before the surprise BOJ rate
hike that triggered the yen carry trade selloff early Aug. With the ST
Composite and VIX call indicator still positive the timing may be a few weeks
away and seems to line up with the election. Perhaps a surprise loss by
Trump disappoints those looking for lower taxes. However, it appears
unlikely that it would be the final hurrah with overall sentiment where it is
today.
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 continued to drop below the weak
Sell.
Update Alt EMA. Bearish sentiment remains 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 EMA. Bearish sentiment remains above neutral.
The ST VIX calls and SPXADP indicator bearish sentiment increased to above
the weak Sell as VIX call buying increased on down days.
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 moved toward a strong Sell with lower hedging
and stronger FOMO.
Bonds (TNX). Bearish sentiment remains near 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 near a strong Buy.
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 declined further below neutral.
With the sister options Hedge Spread as a ST/INT indicator
(outlook 1-3 mns), bearish sentiment fell sharply below a weak Sell and may
be heading to the Nov 2021 levels with an increasing risk of a pickup in
volatility.
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 above
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 for NDX - a sharp drop in ETF P/Cs has sent this indicator
back to a strong 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 also declined sharply beyond 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 Oct 4. 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 5738 (+35), options OI for Mon is large with strong call
resistance at 5750 and moderate resistance lower toward the 5700 level.
Wed has small OI where SPX has put support at 5675 and 5700 and call resistance
above 5720.
For Fri jobs report SPX has moderate OI with overlapping put/call positions
between 5650 and 5750. Likely range 5700 +/- 25.
For Oct EOM there seems to be a lot of optimism for SPX 5800+.
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
at a weak Sell -1.0 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. For most of the last two years I have been expecting
an important top in the SPX in late 2024, possibly near the election, but some
indicators , namely the SPX ETFs and P/Cs are still showing considerably more
bearishness than what was seen prior to the early 2022 top. What it will
take for the SPX bears to give up is still unknown. The overall ST outlook
for a choppy market into the election remains in place, but the increasingly low
hedging and high call FOMO are warning of the possibility of another "gray swan"
event like the yen carry trade selloff early Aug.
Weekly Trade Alert. SPX options OI is showing resistance at 5750
and support just below 5700, so some weakness is expected, likely in the
5675-5725 area. Updates @mrktsignals.
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.
