I sent an email blast notifying subscribers of the new post. If you did not get this email, email your user name to Stormchaser80llc@gmail.com so we can fix your email address in my database!
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.
Welcome to another log-in free Friday post. 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!
If you are one of my subscribers, I informed you of my trip in advance. As you probably figured out, the dinosaur of a laptop I took with me did not work well enough to be productive.
I have a wedding I am going to on Thursday so unfortunately, there will be no Thursday or Friday post. After I get back I will investigate a new tablet or laptop option for travel but want to make sure I make the right choice by researching it first.
Also before my trip, I decided just how I am going to generate my BUY and SELL signals, using a combination of the Cumulative Technicals Model and SPX price. I am close to having this done. During the winter I will have the time to write a script to generate BUY and SELL indicators using an ensemble of model members (instead of 1, using 1000 instead). This will get us where we need to be in order to have our swing trading system in place.
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: 2.8
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. It ticked lower from Wed-Fri. 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 22nd 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. We also made a new lower low on the technicals daily readings today, lower than early August, despite the SPX being at a higher level (negative divergence, bearish).
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.
ADX: Bearish, trading range
RSI: Upper quartile
Candle: Doji, indecision
Volume: Increasing, but below the slackening 20 period moving average
Moving Averages: Close>20>100>50>200 period moving averages
% Bollinger Band: Upper quartile
Bollinger Band Width: Steady
MACD: Bullish at a positive value, histogram ticked lower last 3 weeks!
ADX: Bearish, trading range
RSI: Mid range
Candle: Doji, indecision
Volume: Higher, above the leveling 20 period moving average
Moving Averages: 20>Close>50>100>200 period moving averages
% Bollinger Band: Lower quartile
Bollinger Band Width: The narrowest since Summer 2015 (yellow dotted line)
MACD: Bearish at a positive value, histogram ticked lower
Above the 2131 pivot.
Positive divergences in ADX, RSI and MACD look bullish for the market to start next week.
MACD and RSI negative divergence seen at today’s peak, supporting $VIX weakness to begin next week. Also sometimes the last hour’s $VIX move is a signal for the next day, here suggesting further weakness.
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 20th day in a row, although off the early August 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 all 5 indicators! Huge negative divergence seen on the Full Stochastics (red arrows) since March.
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. 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 higher today, despite the oil loss. Would suggest that oil bounces early next week. Negative divergences since March support lower values ahead.
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 2 months ago. Nothing favors new 2016 highs for oil here, not seasonality, nor technicals.
Oil traded higher for part of the day before closing lower. The HYG:IEF ratio suggests that oil may trade higher early next week, though probably not that significant in the long run.
Oil may still make new 2016 lows by the end of the year.
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.
- Number of New Lows near zero
- $VIX may be weakening
- SPX Daily above all major moving averages
- HYG:IEF and Oil may bounce early next week
- Positive Divergences on the hourly SPX chart
Interesting things for the Bears…
- Cumulative Technical Model lower Wed-Fri
- The Technical Model:SPX ratio has been negative for 22 straight days!
- Daily scores from the Technical Model negatively diverging through the month of July and August
- Number of new highs nearing zero
- McClellan Oscillator closed negative for the 20th straight trading day
- Number of stocks above their 20/50 dma negatively diverging again from recent SPX peaks, with sell signals on all 5 of these indicators!
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 4 weeks
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 3 weeks
- Longer term $VIX 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: 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).
Can’t see my post above? You need to register for a free account first! If you are a member, please login here! If you have login problems try these steps:
- Check to make sure you are using the correct username (not email) and password
- Clear your web browser cache (search for instructions for your browser)
- Try a different web browser
- Take a screen shot at the point you are getting stuck and send it to me
Please, if you find any technical issues that the above steps do not solve, email me at firstname.lastname@example.org
Not a member? You need to register. Don’t worry its free and fast!
Register New Account
- All I ask, is for you to create a user account. No payment information will be collected at all at this time.
- After you create your user account and agree to all the terms and conditions, you will be granted access to posts like you are used to, only upgraded!
- It may take up to 12 hours for you to be able to see content, please check back!