Friday December 2nd, 2016

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Stormchaser80, L.L.C.
Disclaimer: http://navigatethemarketstorm.com/disclaimer/ 
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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

  • 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 another log-in free Friday post. If you like posts like these, please fill out the registration form at the bottom of the post. Its fast and FREE.

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: 2.0 [2.0 single day]

New Volatility Model (expanded from 10 inputs to 50):  3.3 [3.7 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 18 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 in a row, that the ratio of the two is below zero! Also note that we in the neutral zone between strong buy or sell conviction.

index_cumulative_all

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.

There is currently negative divergence that we must keep an eye on.

Comparing the slope of the Technicals Model vs. SPX today, the Model is slightly more bearish. These 1-day signals are not very reliable, but better than 50-50. 

index_daily_1year

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

w

Another new high this week, but, there are negative divergences back to 2013 on the ADX DI, RSI, MACD and MACD histogram. These divergences have only steepened this year. While we could be consolidating, the deteriorating technicals (no positive divergences) suggest we are more likely topping. Also note the blue Bollinger Band Width 2nd from the bottom. The dashed yellow line represents the narrowest recorded since 1970. Notice we are right at these levels. A BIG move will materialize. ADX is also trending in the bears direction.

ADX: Bearish, trending

RSI: Mid Range

CandleInside bearish

Volume: At the steady 20 period moving average.

Moving Averages: Close>20>50>100>200 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 for 4th straight week

SPX Daily

d

A pull-back after negative divergences leading to recent highs. But the trend higher is not necessarily done.

ADX: Bearish, trading

RSI: Mid range

CandleDoji, indecision

Volume: Below the steady 20 period moving average.

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

% Bollinger Band: Mid range

Bollinger Band Width: Narrowing

MACD: Bearish at a positive value, histogram ticked lower for the 13th day in a row

SPX Hourly

h

Below the 2012 pivot.

At today’s lows, there was positive divergences on ADX DI, RSI, MACD and MACD histogram. This could satisfy the requirements leading to another leg higher.

VIX Hourly

vix

No new $VIX highs today. This looks like a counter rally against the lower $VIX trend. Will have to wait to re-build negative divergences at a higher $VIX before a true turn lower comes.

Only then should we make a new $VIX low since the early November top. I have confidence in this scenario since RSI and ADX +DI have not made positive divergences ahead of a new lower low yet.

SPX Breadth

breadth

High-Low was +17 today. The McClellan Oscillator was positive for the 19th trading day, making a new high last Friday, with the summation index back into positive range. Negative divergences are still valid for New Highs and now the McClellan Oscillator.

SPX %above MA

ma

The stochastic indicators have signaled a BUY for 5 of the 5 indicators. Huge negative divergence seen on the Full Stochastics (red arrows) since March.

3 of these indicators have fallen quickly out of the red Topping Zone, stabilizing today. The interesting thing here is the negative divergence now in place between July and late November on these indicators.

TLT:TIP Daily

tlt_tip

Are we nearing the end of this flush or is this the new trend lower (meaning Trump saved America from Deflation)?

TLT:TIP has shown weakness after the record high for deflation fears occurred on 7/11/2016. Note we are still at the 2008 peak 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 Daily

hyg_ief

HYG:IEF recovered a bit of Thursday’s losses. Note the negative divergences on the ADX DI, RSI and MACD histogram. This may signal further weakness ahead.

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

Oil Daily

oil

Another move higher today, but on lower volume though closing above the Bollinger Band. Negative divergence on MACD histogram, but none others at today’s highs. Only negative divergence today was a slight one on the ADX +DI.

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Summary: Bulls vs. Bears

Final Thought:
The SPX daily chart shows a pull-back after negative divergences leading to recent highs. But the trend higher is not necessarily done. On the hourly scale positive divergences are seen at today’s lows on all technical indicators, supporting higher prices. But I still think that we need to see a new higher $VIX before it resumes downward. Trying the connect this with the SPX charts is more difficult than normal.

Luckily I have my proprietary Technicals Model to lend a hand. It current is still positive, but it too has not formed any positive divergences advertising a new leg up. These clues all lead me to think that a likely outcome is for short term higher prices Monday, but the downtrend is probably not yet done. Breadth also suggests more time is needed to consolidate before a new leg higher begins.

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 highs
  • Oil short term bounce
  • BUY signals on 5 of 5 of Number of stocks above their 20/50 dma, but 3 of them reached the red Topping Zone and these have fallen from their 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 7th day, and above the 100 dma for the 5th day
  • 999/999 Ensemble Members are bullish
  • Technical Model positive last 18 days, albeit close to zero now
  • Weekly MACD is a BUY

Bearish

  • $VIX to start a move higher, but is this a fake out?
  • Cumulative Technicals Model has not made a new high in 2016
  • Technical Model negative for 26 of past 44 days, unprecedented!
  • The Performance of the Technical Model:SPX ratio has been negative for 72 of the past 89 trading days, unprecedented!
  • Daily scores from the Technical Model negatively diverging through the months of July-September
  • SPX 50 dma below the 100 dma for past 19 trading days
  • After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 18 weeks
  • Monthly technicals very favorable for a stalling market

Levels to watch

  • 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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