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401K/Long Positions: Yes
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.
My LONG signal went to a YES Thursday.
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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: 7.7 [6.7 single day]
If you missed Wednesday’s and Thursday’s post, you would have seen how my index was showing significant rises in volatility compared to $VIX which was getting crushed. Price action dictated the higher score in my Volatility Model, which can be used to gage how quickly to take action on trends.
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 Wednesday. 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. 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 41st trading day in the row that the ratio of the two is below zero. If it continues on like this, the market may be in the process of putting in a significant top!
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 2 months. For the past 7 trading days the Model has been improving giving an advance heads up about the potential upside. However, we do need to keep the deteriorating since July in the back of our minds should the short term trend start to fade.
Today was higher (albeit slower advance) despite lower market prices. This may indicate some more upside is possible Sunday night into Monday. However, 1 day divergences are obviously not going to be as correct as longer divergences, so keep that in mind.
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: Bullish, but off the highs
Volume: Just below the steady 20 period moving average
Moving Averages: Close>20>50>100>200 period moving averages
% Bollinger Band: Middle
Bollinger Band Width: Slowly decreasing
MACD: Bearish at a positive value, histogram ticked lower for the 7th straight week
ADX: Bullish, trending
RSI: Mid range
Candle: Inside candle day
Volume: Below the steady 20 period moving average
Moving Averages: 50>Close>20>100>200 period moving averages
% Bollinger Band: Middle
Bollinger Band Width: Steady after expanding from he narrowest since Sept 2014 (yellow dotted line)
MACD: Bullish at a negative value, histogram ticked higher for 7th straight day
Above the 2131 pivot.
I dont see enough negative divergences on ADX DI, RSI, MACD or MACD histogram to say that 14 UTC on 9/22 was the top of this uptrend.
Thursday morning I tweeted out this chart with a possible Elliott Wave count for situational awareness purposes. This demonstrates the only Bear case I could think of, and it means the buying has to stop very soon.
$VIX had a slight recovery today, and even sparked a fresh BUY signal using hourly MACD as a guide. But these signals don’t always resolve well, see 9/19. At the lows yesterday I noted the MACD histogram was steady despite much lower prices. Also on the close Thursday both RSI and ADX DI put in positive divergences with the end of the day low.
The way I see it right now, I think $VIX could still make a fresh new low here, on a Wave 5 of C lower. Current price action looks right as a Wave 4 higher back into the Bollinger Band. The fresh low would occur early next week, inside the Bollinger Band, and above the 11.0 level. This is a guess based on mostly small positive divergences seen thus far, today’s sideways-up price action, and what I noted on the SPX hourly chart.
New Highs and McClellan Oscillator were obsviously lower today, however number of New Highs is still above 10 and McClellan Oscillator registered its 3rd day in a row of positive levels.
SPX %above MA
The stochastic indicators have signaled a SELL for 2 of the 5 indicators. Huge negative divergence seen on the Full Stochastics (red arrows) since March.
The BUY signal for 3 of 5 of these indicators which triggered Thursday are still holding.
TLT:TIP has shown weakness after the record high for deflation fears occurred on 7/11/2016. Note we are still way above the 2008 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 only lower again today.
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
Oil is toast, making its high on 6/8, more than 3 months ago. Nothing favors new 2016 highs for oil here, not seasonality, nor technicals.
Oil had a ‘No Good Very Bad Day.’ Let me show you my shocked face…
Oil was rejected by the 100 dma and sliced through the 20 dma on its way to the 50 dma.
Oil may still make new 2016 lows by the end of the year.
Summary: Bulls vs. Bears
Final Thought: With the Technicals Model being positive today, outperforming the market, may be a clue that there is still reason to be somewhat bullish here. A new high would fit the Hourly SPX chart where additional negative divergences need to be put in. This also fits the $VIX analysis that price action looked to be a Wave 4, and 1 more low would set up much more substantial positive divergences that would look more right.
- Number of New Lows near zero
- Above the 2131 pivot level
- McClellan Oscillator was positive for the 3rd day (but lower)
- HYG:IEF still near recent highs (but softening)
- Cumulative Technical Model higher, outperforming the market Friday.
- SPX Daily above all major moving averages except the 50 dma
- BUY signals on 3 of 5 of Number of stocks above their 20/50 dma
Interesting things for the Bears…
- $VIX BUY signal, but 1 more fresh low would make the most sense here
- Long term trend of the number of New Highs decreasing
- The Performance of the Technical Model:SPX ratio has been negative for 41 straight trading days!
- Daily scores from the Technical Model negatively diverging through the months of July and August
- New Highs near zero
- SPX 20 dma below the 50 dma
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 8 weeks
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 7 weeks
Levels to watch…
- 2131 pivot level
- A break below 2112 SHOULD stick the fork in this entire uptrend from February, this occurred on 9/12
- 2085 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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