Friday December 23rd, 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…

Friday’s post is open for all to see. But if you would like to read these posts every trading day, please sign up for a FREE user account at the bottom of my post. Of course we also have the new SPX Weekly chart analysis.

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: 1.3  [1.0 single day]

New Volatility Model (expanded from 10 inputs to 50):  2.8 [2.4 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 its 2nd down day since 11/7/2016!! 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 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 8th day back in negative territory. Its very close to reaching the -200% Bearish Signal Thursday.

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.

With Thursday’s massive drop, a significant bearish negative divergence has formed between the Model and SPX Daily. Its time to take notice and take action!

Comparing the slope of the Technicals Model vs. SPX today, the Model is slightly more bullish. 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 23, 2016]

No new high this week (closing below the top Bollinger Band after closing above for the 2 prior weeks). There are negative divergences back to 2013 on the ADX DI, RSI, MACD and MACD histogram. These divergences have only steepened this year.

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: Near the upper band

Bollinger Band Width: Expanding from very narrow levels

MACD: Bullish at a positive value, histogram ticked  higher for 7th straight week

SPX Daily

Just looking at the Daily chart, the trend higher should not be done as negative divergences have not been put in at the top.

ADX: Bullish, trending

RSI: Upper Quartile

Candle: Doji, indecision

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

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

% Bollinger Band: Upper quartile

Bollinger Band Width: Steady

MACD: Bearish at a positive value, histogram ticked lower for 8th 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. Now under this thin yellow line it is currently backtesting it.

Negative divergences put in early last week are playing out. A lower low is expected due to the lack of positive divergences at last Wednesday’s low (2247.9) before any sustained move higher.

VIX Hourly

At Wednesday’s low positive divergences with ADX DI, RSI, MACD and MACD histogram were put in place. There was also a bullish MACD cross. $VIX looks to be starting an uptrend.

SPX Breadth

High-Low was +10 today. The McClellan Oscillator was negative for the 3rd trading day in the last 34. It made 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 5 of the 5 indicators. 

These indicators are well off their highs, and we are starting to see a stronger downdraft forming.

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 new 2016 highs today. With this new high, negative divergences on the ADX DI, RSI, and MACD histogram have strengthened, further supporting a future pull back.

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

Oil Daily

Oil had some gains Friday with very low volume. 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:
When performing my analysis of the market and internals, the one thing that really stood out to me today was how low my proprietary Volatility Model is currently reading. Very low readings such as these usually occur near market tops.

Other bearish items include a new $VIX uptrend, negative streak occurring in McClellan Oscillator, and recent negative divergences in both McClellan Oscillator and New Highs. The number of stocks above their 20/50 day moving average could be starting a significant deterioration, Even in a continued bullish scenario, my hourly SPX analysis continues to indicate a new low below 2247.9 seen on 12/14. My proprietary Technicals Model was negative again for the 2nd day in a row, but less so than Thursday. Still can’t ignore the negative divergences vs. SPX seen since mid December.

On the bullish side, SPX Daily analysis showed no negative divergences at recent highs, which most often means a new high is expected. HYG:IEF continues to make new 2016 highs. While my legacy swing trading signals are neutral, all 999 members of my new ensemble are currently bullish.

Bullish

  • SPX Daily above the 20, 50, 100, 200 dma
  • HYG:IEF near 2016 highs
  • Oil near 2016 highs
  • Technical Model (cumulative) is above its 200 dma
  • SPX 20 dma above the 50 dma for the 22nd day, and above the 100 dma for the 20th day
  • SPX 50 dma above the 100 dma for 9th day
  • 999/999 Ensemble Members are bullish
  • Weekly MACD is a BUY
  • Closed near Top Weekly Bollinger Band

Bearish

  • $VIX starting an uptrend
  • Technical Model negative for 2nd day in a row
  • Cumulative Technicals Model has not made a new high in 2016
  • Negative divergence on New Highs
  • Negative divergence on McClellan
  • McClellan Oscillator broke its streak of above zero values and is negative for 3rd day in a row
  • Monthly technicals very favorable for a stalling market
  • SELL signals on 5 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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