OPEX Ends on a High Note, but Indexes Fall AH

The S&P 500 ended monthly options expiration week (OPEX) on a strong note, before falling afterhours on the US debt downgrade. The last two debt downgrades caused pullbacks that lasted around a month and saw the S&P decline 3-5%.

Many key stocks closed near resistance today and the S&P triggered a DeMark 13 trend exhaustion signal (see chart below) while the Alignment Score shows that the index is in overbought territory. I wrote yesterday that I’ve been selling equities recently given the 5 and 15 TD model signals, but I will look to buy the next dip if interest rates take the downgrade relatively well. Recent history shows that equities struggle when the 10-year treasury is above 4.5% so if this development takes us on a path back towards 5% then that’s going to be a problem for stocks.

Index put and call selling has me believing that any pullback will be shallow. Index put selling on the major indexes has left what I call the short squeeze zone in green but is not yet close to the zone where larger sell offs are more likely to occur.

Now let’s look at the same analysis, but for call selling. Starting to signal caution for sure, but not really there compared to other tops.

A comparison of puts sold to calls sold sometimes gives a clearer signal. This view is also signaling some caution here as whales sell calls. If you’re wondering where to get this data, I have bad news. It’s not public and it’s not cheap to buy, but I have spent the money, and I will always share the data in chart form with you here if it’s relevant.