Friday December 16th, 2016

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Stormchaser80, L.L.C.
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=========SIGNALS, NOT INDICATIVE OF POSITIONS=========
401K/Long Positions: No
Short Positions: No
# Ensemble Memebers that are Bullish: 999/999

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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’ above 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.

==============My Website To-Do List (Vision)=============

This site which only premiered on April 1st, 2016 has already come a long way. But there is so much more that I want to do, so I thought I would demonstrate my goals below! If you have any suggestions, feel free to shoot me an e-mail or comment

  • Done, In Testing: Ensemble of 999 long/short indicators
  • Build a real-time display for worldwide indicies, currencies and commodities, this is the first step in transitioning the site to a real-time tool for more active traders
  • Replicate the Technicals Model at the Weekly, Hourly, 15-min scales to give a real-time view of Market Trends expanding from the Daily view that I already provide
  • Custom charting code so I can display multiple models in best possible way
  • Real-time charting of Hindenburg Omens

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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!

First Thoughts…

Welcome to the login free weekend post. If you like what you see and are not already a member, please take a second to sign up for a FREE login at the bottom of this post, so you will be able to view analysis like this every trading day.

This week we have been monitoring the pullback, and assessing the likelihood of a continued bullish run.

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: 4.8  [3.7 single day]

New Volatility Model (expanded from 10 inputs to 50):  6.2 [5.0 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.

MOMO

Technicals Model (proprietary)

The first chart below is the cumulative Technicals Model dating back to 2006.  The Model has had 28 up days in a row. The last negative day was Mon 11/7 (after being down 26 days in a row)! This was worse than any time during the 2008-2009 crash! 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 earlier in 2016). I also want to point out that the cumulative Technicals Model has not made a new All Time High in 2016. The model has now regained the 200 dma that it lost in October.

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 3rd day back in negative territory.

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.

Made a new high surpassing the November high last Friday, wiping out any negative divergence that was in place. This is bullish! However the model needs some strength in Technicals otherwise it could break down from here.

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. 

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.

SPX Monthly [from Nov 30, 2016]

m

On the monthly scale, the market continues to be either forming a top, or consolidating during the past several years.

ADX: Bearish, trading

RSI: Upper quartile

CandleDoji, indecision

Volume: Below the steady 20 period moving average.

Moving Averages: Close>12>36>72>120 period moving averages

% Bollinger Band: Upper Quartile

Bollinger Band Width: Slowly widening but at very narrow levels

MACD: Bullish at a positive value, histogram ticked  higher

SPX Weekly [from Dec 16, 2016]

Another new high this week (closing above the Bollinger Band for the 2nd week in a row), but, there are negative divergences back to 2013 on the ADX DI, RSI, MACD and MACD histogram. These divergences have only steepened this year. Also note the blue Bollinger Band Width 2nd from the bottom. The yellow line represents the narrowest recorded since 1970. Notice we are rising from these levels. A BIG move is underway.

ADX: Bullish, trending

RSI: Upper quartile

Candle: Doji, indecision

Volume: Below the steady 20 period moving average.

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

% Bollinger Band: Above the upper band

Bollinger Band Width: Expanding from very narrow levels

MACD: Bullish at a positive value, histogram ticked  higher for 6th straight week

SPX Daily

The trend higher is not done as negative divergences have not been put in at the top on the Daily chart.

ADX: Bullish, trending

RSI: Upper quartile

Candle: Doji, indecision

Volume: Very low, well below the steady 20 period moving average.

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

% Bollinger Band: Upper quartile

Bollinger Band Width: Steady

MACD: Bullish at a positive value, histogram ticked lower for 3rd day in a row

SPX Hourly

Hit the 2270 pivot (blue) and bottom of the Sept-Oct triangle in yellow then pulled back to the other bottom of the Sept-Oct triangle, thin yellow line.

Negative divergences put in earlier in the week are playing out. A lower low is expected due to the lack of positive divergences at Thursday’s low.

VIX Hourly

Still need a new $VIX low as the positive divergence in RSI was wiped out in early December.

SPX Breadth

High-Low was +20 today. The McClellan Oscillator was positive for the 29th trading day, making a new high 11/25/16, with the summation index in positive range. Negative divergences are still valid for the McClellan Oscillator, New Highs, plus the longer negative divergences since summer.

SPX %above MA

The stochastic indicators have signaled a SELL for 3 of the 5 indicators. Negative divergence seen on the Full Stochastics (red arrows) since March.

These indicators had their worst falloff since late November, but still remain above those levels. This is key to a continued bullish run.

TLT:TIP Daily

Are we nearing the end of this flush or is this the new trend lower (meaning Trump saved America from Deflation)? If TLT:TIP can get and stay below 1.00, the economy may be starting to expand faster (without the FED?).

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 Daily

HYG:IEF made a new 2016 high, before pulling back a bit during the day. Risk remains ON. There were minor negative divergences on ADX DI made today and of course the longer term ones on MACD and MACD histogram.

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

Oil Daily

Oil had a good day, after trying to find a footing on Thursday. A higher high is expected eventually as the only divergences were RSI and the MACD histogram at recent highs.

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Summary: Bulls vs. Bears

Final Thought:
Check the calendar. Santa rally possible next week or two. This would fit the narrative I have been speaking to during the past week. SPX is running sideways after new highs Tuesday.

SPX Weekly chart remains bullish, finishing above its top Bollinger Band for the second week in a row. On the Daily chart, no negative divergences were seen at the highs Tuesday. The negative divergences that formed late last week and early this week on the SPX hourly are playing out. Further weakness is expected with no positive divergences seen at Thursday’s lows.

All 999 ensemble members remain bullish with the legacy signals suggesting neutral positioning is best. My proprietary Technicals Model was slightly higher today, but still is lagging the SPX which may lead to further weakness ahead. Still believe need a lower low on VIX before bears should get excited.

Bullish

  • SPX Daily above the 20, 50, 100, 200 dma
  • Positive Divergence vs. September Low on McClellan Oscillator
  • Positive Divergence vs. September Low on 2/5 Percent Above Moving Averages
  • Positive Divergence vs. September Low on Technicals Model
  • HYG:IEF near 2016 highs
  • Oil near 2016 highs
  • Broke long term trend of the number of New Highs decreasing
  • Technical Model (cumulative) is above its 200 dma
  • SPX 20 dma above the 50 dma for the 17th day, and above the 100 dma for the 15th day
  • SPX 50 dma above the 100 dma for 4th day
  • 999/999 Ensemble Members are bullish
  • Technical Model positive last 28 days
  • $VIX continues its downtrend, but this may be ending soon
  • Weekly MACD is a BUY
  • Closed above Top Weekly Bollinger Band

Bearish

  • Cumulative Technicals Model has not made a new high in 2016
  • Technical Model negative for 26 of past 54 days, unprecedented!
  • The Performance of the Technical Model:SPX ratio has been negative for 72 of the past 99 trading days, unprecedented!
  • Daily scores from the Technical Model negatively diverging through the months of July-September
  • Negative divergence on New Highs
  • Negative divergence on McClellan
  • Monthly technicals very favorable for a stalling market
  • SELL signals on 3 of 5 of Number of stocks above their 20/50 dma

Levels to watch

  • 2270 Bottom of Sept-Oct triangle and pivot
  • 2212 pivot
  • 2177 pivot
  • 2148 near 50/100 dma
  • 2131 pivot level
  • 2128 20 dma
  • 2116 pivot level
  • 2089 SPX 200 dma
  • 2085 pivot
  • 2070 pivot

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Feb-March 2016 Posts: https://stormchaser80.wordpress.com/ 

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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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