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401K/Long Positions: No
Short Positions: No
I have identified my BUY and SELL signals for LONG positions, with 1 model member. It will become a lot more robust, and a lot less whipsaws when I develop an ensemble of 999 members this upcoming winter. These signals are the result of several scripts and a very large Excel Spreadsheet on my desktop. So I will post the ‘final answer’ which is what most of you want anyways!
I have found that when the Technicals Model to SPX performance is at or below -200%, this is the only good time to SHORT the market.
As always, the Monthly, Weekly, Daily, Hourly and so on SPX charts I show are from all hours of the day, and therefore the prices and indicators will vary from charts which only show action during regular trading hours. I believe this method is more robust and encapsulates global sentiment, better capturing trends.
I mark negative divergences in red, and positive divergences in green. Please note that some indicators such as -DI are inverse, so a positive divergence is bearish and a negative divergence is bullish!
Welcome to another login free Friday post. And since its Friday, there is also discussion about the SPX Weekly chart. If you would like to see posts like this every trading day, please take 15 seconds to sign up for a free login at the end of this post!
My short position from Wednesday has about a 0% return thus far. I decided to hold on to my short position despite my SHORT signal going from ‘Yes’ to ‘No’ yesterday based on some of the same analysis below.
S&P500 Volatility (proprietary)
I developed the S&P500 Volatility Index to help characterize the volatility of the S&P500 market on a scale of 0 to 20. It has nothing to do with $VIX (which shows the market’s expectation of 30-day volatility, constructed using the implied volatilities of a wide range of S&P 500 index options). This indicator serves to rank the volatility of the current market period using market data from 1990 to 8/9/2016.
Why does this matter? In coming up with BUY and SELL signals in any system, you need to know when to flip quickly, vs. times you can wait and see if your signal is a fluke or not. This is a way to limit position flip-flopping.
Score>15 Market is volatile [flip quickly]
Score~10 Transition zone
Score<5 Market lacks volatility [wait out change in indicators]
3-day average S&P500 volatility is scored at: 2.2 [1.5 single day]
Below I plot the momentum scores since 1990. You can see the Bear and Bull markets, but there were also times in Bull markets you needed to trade aggressively (May 2010, 2011, Aug 2015), and periods in Bear markets you could trade with a slower trigger.
Technicals Model (proprietary)
The first chart below is the cumulative Technicals Model dating back to 2006. The last negative day was Today (now 15 days in a row)! The last time this occurred was January 2016! Here you can see the model performance (in blue vs. SPX in black) all the way back to 2006! I added the purple 200 day moving average to help discriminate between bull markets vs. bear markets (although fake-outs do occur such as 2011, and either 2015 or currently). I also want to point out that the cumulative Technicals Model has not made a new All Time High in 2016. In fact, it HAS FALLEN below the 200 day moving average once again, which supports a bear market, if this persists!
I have noted that the model did not confirm the last high for the SPX in 2007 (as denoted by red down arrows on the model, vs. SPX green up arrows).
Below the Model and SPX chart on figure 1, I have the performance of the ratio of the two. I have noted extreme readings (green) as potential bargain buy (such as Brexit which was the last extreme reading in green), and extreme Red readings being bearish for the market. Today is the 61st trading day in the row that the ratio of the two is below zero! The ratio is a touch above -200%, making the Short Signal a ‘No’.
This next chart shows the daily readings, not in cumulative mode as above. Here you can see which particular trading days are the strongest/weakest technically with the markets as portrayed by the model. Divergences also show up near market Tops/Bottoms. Note that significant deterioration has taken place in the comprehensive list of SPX individual stocks’ technicals in the past 3 months. But we must keep an eye on potential positive divergence from early September.
I am less concerned about my short position today as the Technicals Model has turned lower today.
Comparing the slope of the Technicals Model vs. SPX today, the Model is more bearish. These 1-day signals are not very reliable, but better than 50-50. Also note in green the positive divergence that supported this tradable bounce!
What is this model? It’s a comprehensive assessment of a good number of technical indicators on each S&P500 stock. This model does 2 things well. First, it shows divergences from SPX price (for example, take a look at the Brexit SPX reaction at the end of June (black) vs. the non-reaction in my model (blue)). Most valuable of all, my model has a lot less volatility than SPX price but does a great job of capturing SPX trend, which should do well with forecasting SPX price movements in the future.
ADX: Bearish, trading
RSI: Mid range
Candle: Indecision, well off the lows and highs
Volume: Above the stead 20 period moving average
Moving Averages: 20>Close>50>100>200 period moving averages
% Bollinger Band: Middle of the band
Bollinger Band Width: Gradually falling
MACD: Bearish at a negative value, histogram ticked higher for 11th week in a row
ADX: Bearish, trending
RSI: Mid range
Candle: Indecision, well off the lows and highs
Volume: Below the rising 20 period moving average
Moving Averages: 50>20>100>Close>200 period moving averages
% Bollinger Band: Lower quartile
Bollinger Band Width: Fairly Steady
MACD: Bearish at a negative value, histogram ticked higher for 4th day in a row
Above the 2131 pivot.
Negative divergences were put in at the past several peaks Wednesday and Thursday as noted on the ADX DI, RSI, MACD and MACD histogram.
Friday, I see a few positive divergences during the morning lows, with ADX -DI, RSI and MACD histogram. Either we get another low to formulate the remainder of positive divergences, or these new ones get worked off early Monday.
$VIX continues to form a pattern that I see as favorable for my shorts.
We made a lower low with $VIX today, yet you can see the positive divergences on ADX +DI and -DI, RSI, and MACD histogram. Getting close to a $VIX BUY signal, as we cycle closer to the MACD positive cross.
Since its the weekend, I thought I would break $VIX down on the 15-minute timeframe to show what I am seeing in more detail.
Here you see all the same positive divergences shown on the hourly chart. I labeled a potential Elliott Wave Pattern, which has likely ended today. Additionally, I have drawn a converging triangle ending pattern. These indicate that $VIX will likely shoot higher next week, as early as Monday.
High-Low was +6 today. The McClellan Oscillator was negative for the 15th day in a row. If/when the summation index falls below zero, that is when shorts will become quite fruitful when short term signals align.
SPX %above MA
The stochastic indicators have signaled a BUY for 4 of the 5 indicators. Huge negative divergence seen on the Full Stochastics (red arrows) since March.
3 of 5 of these continue to show positive divergence with last Thursday’s low (compared to early September). Will need to watch if these hold.
Are the deflation drums beginning to beat once more?
TLT:TIP has shown weakness after the record high for deflation fears occurred on 7/11/2016. Note we are still at the 2008 peak crisis levels. This does not even consider that SPX is near All Time Highs, nowhere near 900 when the first peak occurred!!!
The bond market Deflation vs. Inflation metric (iShares Barclays 20+ Year Treasury Bond Fund vs. iShares Barclays TIPS Bond Fund). The previous peak was 10 Feb 2016. Values late in 2014 and pretty much all of 2016 are showing higher Deflation fears than even 2008-2009.
From this chart you can clearly see when the FED stepped in (when this ratio was nearing 1, except things got out of control at the peak of the 2008 downturn until the FED figured some things out). Clearly things changed since late 2014 and the FED has stepped aside leading to the Deflation fears building beyond the 2008 crisis.
HYG:IEF ratio was marginally lower today, almost climbing all the way back to even after a bad start. I’d like to see a final high putting in negative divergences on the technical indicators, before the trend reverses lower for good.
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
Oil recouped some of its losses from Thursday. Note fairly complete negative divergences on ADX DI, RSI, MACD histogram, MACD signal, and a fresh negative cross. Oil may have topped for good.
A collapse is still possible based on negative divergences since summer in the technical indicators for the end of 2016.
Summary: Bulls vs. Bears
Final Thought: The market is very quiet right now, which is concerning. My proprietary Volatility Model, which is not related to $VIX in any way (measures the market using various statistical schemes based on data from 1990-2016) is indicating that the market is only this quiet less than 1.69% of the time (114 of 6751 trading days). Tops are quiet, not bottoms.
Most notable for the Bulls is the potential positive divergence between the 10/13 low and 9/12 low. This is seen in our proprietary Technicals Model, SPX McClellan Oscillator, and several of the Percent Above Moving Averages we follow. However in all-hours trading the 10/13 low was not lower than the 9/12 one which would negate these divergences.
I remain short the market because of the following. $VIX is coming through how I have hoped, and today we show a potential ending count to the decline in $VIX since 10/13. This also matches the positive divergences seen on all $VIX technical indicators on both the 15-min and hourly charts, and we are very close to getting a $VIX BUY signal, as we cycle closer to the MACD positive cross on the hourly chart.
- Number of New Lows near zero
- SPX Daily above 200 dma
- HYG:IEF hanging around 2016 high, though a bit off that high
- Oil hanging around 2016 high
- $VIX in downtrend, but could be ending very soon!
- Above the 2131 pivot level
- BUY signals on 4 of 5 of Number of stocks above their 20/50 dma
- Positive Divergence vs. September Low on McClellan Oscillator
- Positive Divergence vs. September Low on several Percent Above Moving Averages
- Positive Divergence vs. September Low on Technicals Model
- Cumulative Technicals Model has not made a new high in 2016
- Technical Model (cumulative) below its 200 dma first time since Spring 2016
- Technical Model negative for 15th day in a row, last occurred in January 2016
- Long term trend of the number of New Highs decreasing
- The Performance of the Technical Model:SPX ratio has been negative for 61 straight trading days!
- Daily scores from the Technical Model negatively diverging through the months of July-September
- New Highs near zero
- SPX 20 dma below the 50 dma for the past 27 trading days
- SPX Daily below 20, 50, 100 dma
- SPX 20/50 dma are slopping downward
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 12 weeks
- Weekly close below the 20 week ma for the first time since Brexit
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 11 weeks
- Weekly MACD is a SELL
- Monthly technicals very favorable for a stalling market
Levels to watch…
- 2131 pivot level
- 2116 is the next pivot level lower
Feb-March 2016 Posts: https://stormchaser80.wordpress.com/
Note: I want you to know that although I have taken the steps to start the subscription business, I will continue to offer the free service through May 2016. I want there to be a good record of (hopefully) accomplishment. Plus I don’t want to spring anything on anyone unfairly. I thought 3 months was enough lead time. I also want to present something nice, and well worth your visit (and subscription).
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