Friday August 12th, 2016

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Stormchaser80, L.L.C.
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Trading Account: 7/1/2016, bought SDS SEP 16 2016 17.00 C for $1.19 
401K: Turining Bearish?
Long Term: World is in a Bear Market, SPX targeting <666 by 2022

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.

First Thoughts…

Welcome to another log-in free Friday post. This is the first time those without logins will be able to ready about my new S&P500 Volatility Index. If you want to sign up for a free login to read daily posts like this, please find the form at the bottom of this post!

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]

Today’s S&P500 volatility is scored at: 1.5

To give you a reference, the last period greater than 10 was 6/24/2016 to 7/12/2016.

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 day it ticked lower is 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 market 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 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 15th 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 this current negative divergence is very steep, and was in negative territory for the 3 days in a row last week, and 1 day earlier this week.


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.

I have the scripting done to process the Model! During the next month or two I will be playing with potential BUY/SELL indicators using the model.

SPX Weekly


ADX: Bullish, trading range, negative divergence

RSI: Upper quartile

Candle: Doji, indecision

Volume: Very Low volume, below the leveling 20 period moving average

Moving Averages: Close>20>100>50>200 period moving averages

% Bollinger Band: Top of the band

Bollinger Band Width: A little wider

MACD: Bullish at a positive value, histogram ticked lower first time in 7 weeks!

SPX Daily


ADX: Bullish, trending, negative divergence

RSI: Upper quartile, negative divergence

Candle: Doji, indecision

Volume: Very Low volume, below the leveling 20 period moving average

Moving Averages: Close>20>50>100>200 period moving averages

% Bollinger Band: Top of the band

Bollinger Band Width: The narrowest since Summer 2015 (yellow dotted line)

MACD: Bearish at a positive value, histogram ticked higher

SPX Hourly


Above the 2131 pivot.

Surprised the market had another higher leg in it, though it only serves to highlight the lengthening negative divergences in ADX, RSI and MACD.

VIX Hourly


$VIX in another uptrend at least in the short term as denoted by green vertical lines where MACD goes positive (MACD slightly negative, have to wait til next week to determine if that higher move is done). RSI and MACD look relatively healthy so the $VIX uptrend may still be alive!

SPX Breadth


New Highs and McClellan Oscillator  have been negatively diverging with the market (blue arrows) since early July and March respectively.  New Highs dropped significantly from early July. What should be alarming to Bulls is the negative McClellan Oscillator for 13th day in a row, although off the recent lows.

SPX %above MA


Percent of Stocks above their 20/50 dma has fallen to near 50% for 4 of the five indicators, now negatively diverging with the SPX higher high (in blue). The stochastic indicators have signaled a SELL for 4 of the 5 indicators! Huge negative divergence seen on the Full Stochastics (red arrows).

NOTE, that the market can stay in the BUY or SELL range (green or red) for quite some time.



TLT:TIP has shown weakness after the record high for deflation fears occurred on 7/11/2016, though now may be in a new uptrend. 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 lower today, despite the oil rally. Negative divergences since March will get in the way soon.

HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.

Oil Daily


Oil is toast, making its high on 6/8, 2 months ago. Nothing favors new 2016 highs for oil here, not seasonality, nor technicals. Oil is at Summer lows. It’s been a broken record, but correct.

Oil blasted continued to tear higher today, landing at the 100 day moving average. Great day for a short covering bounce, on  a Friday. Also note the 50 day moving average is not that far off, providing additional resistance.

Oil may still make new 2016 lows by the end of the year.

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Summary: Bulls vs. Bears

If we learned anything in the past few months, nothing goes in a straight line. We need to continue to look at both the Bullish and Bearish arguments.

Still Bullish

  • Number of New Lows near zero
  • Cumulative Technical Model made a higher tick today
  • $VIX may be weakening
  • SPX Daily above all major moving averages

Interesting things for the Bears

  • The Technical Model:SPX ratio has been negative for 15 straight days!
  • Daily scores from the Technical Model negatively diverging through the month of July and early August
  • Number of new highs nearing zero
  • HYG:IEF and Oil close to accelerating into a plunge??
  • McClellan Oscillator closed negative for the 13th straight trading day
  • Number of stocks above their 20/50 dma negatively diverging again from recent SPX peaks, with sell signals on 4 of 5 of these indicators!
  • After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 2 weeks
  • Significant Daily SPX negative divergences developed on the Daily time-frame
  • Lower high on SPX Weekly MACD Histogram, with first tick lower on the histogram in 7 weeks
  • McClellan Oscillator weaker again.
  • $VIX in uptrend??

Levels to watch

  • 2131 pivot level
  • A break below 2112 SHOULD stick the fork in this entire uptrend from February
  • Until then, we watch 1 day at a time. A break lower only to recover to new high will give us the negative divergences yearned for on the SPX daily chart


Feb-March 2016 Posts: 


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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