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=========SIGNALS, NOT INDICATIVE OF POSITIONS=========
401K/Long Positions: YES
Short Positions: NO
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
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!
Day 1 of Making America Great Again! But stocks are making America snooze again!
Welcome to another Login Free Friday post. If you like my posts, please consider signing up for a FREE subscription to allow you to view posts like these everyday!
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: 1.2 [1.2 single day]
Today was more volatile than 0.4% of all trading days since 1990.
New Volatility Model (expanded from 10 inputs to 50): 2.6 [2.3 single day]
Today was more volatile than 0.2% of all trading days since 1990.
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 Model was higher today, for the 11th day out of the last 19. 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 or 2017. The model has 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 25th day in negative territory. It triggered a -200% Short Signal on 12/30/16!
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.
The model is confirming the downward trend seen in SPX prices, and is in fact at levels seen closer to early November. A huge negative divergence in the Technicals Model is now in place.
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 Dec 30, 2016]
On the monthly scale, the market continues to be either forming a top, or consolidating during the past several years. Its easy to see with negative divergences from the end of 2013 and 2014 on ADX DI, RSI, MACD and MACD histogram.
ADX: Bearish, trading
RSI: Upper quartile
Candle: Bullish but off the highs
Volume: Meager, well 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 for the 9th month in the past 10.
SPX Weekly [from Jan 20, 2017]
There are negative divergences back to 2013 on the ADX DI, RSI, MACD and MACD histogram. These divergences have only steepened in the past year.
ADX: Bearish, trading
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: Expanding
MACD: Bullish at a positive value, histogram ticked lower for the 4th week of the last 10 weeks
We have put in the negative divergences needed now for a top.
ADX: Bearish, trading
RSI: Mid range
Candle: Bullish but well off the highs
Volume: Low, below the steady 20 period moving average.
Moving Averages: Close>20>50>100>200 period moving averages
% Bollinger Band: Mid range
Bollinger Band Width: Near historical narrow levels
MACD: Bearish at a positive value, histogram higher for 1st day in a row
The market has been hovering at the 2270 pivot now for the past 3 weeks. At the lows yesterday there were positive divergences on RSI, ADX +DI, and MACD from a minor low from January 17th. A brief rally ensued into the opening today. There was a selloff this afternoon but no new low. Honestly the technicals dont show many clues here, but I do see at today’s highs no negative divergences. This should favor bulls in early next week.
$VIX uptrend ended at the opening today. However as I said yesterday, the only negative divergences seen at the highs was on MACD histogram. Therefore a new high is expected. At the lows (at the close) I do not see any positive divergences. So, a new low is likely before the new high is set to complete the larger trend higher.
High-Low was +15 today. The McClellan Oscillator was negative. The summation index is in positive range, but may have topped. Negative divergences are shown for much of December into January, and longer term negative divergences go back to 2014.
SPX %above MA
The stochastic indicators have signaled a SELL for 5 of the 5 indicators.
Small caps are breaking down fastest, what we expect to see at the start of a downtrend.
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 formed a doji today and was only slightly lower on nearly average volume of late. Its Bollinger Bands are very tight as well. Technicals are still looking sluggish while there were no positive divergences seen at lows on Tuesday. A lower low is expected.
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
Oil had big gains today, but ended the day well off the highs (above the 20 dma though). Technicals continue to look sluggish with very tight Bollinger Bands.
Summary: Bulls vs. Bears
As I have been saying lately, the market has been trading narrowly around the 2270 pivot since December 11th, with only a brief tumble at the end of 2016. Bollinger Bands are quite tight on SPX, Oil, and HYG:IEF. How tight? Well they are just about as tight as ever recorded since my data goes back to 2002 on the SPX Daily. Meanwhile my proprietary Volatility Models indicate today’s market is only more volatile than 0.4%/0.2% of the time since 1990.
So that begs the question, what are we building up to? The answer, nobody knows for sure. Market Internals and Breadth along with my proprietary Technicals Model have been weak here over the past month. However this could very well be consolidation before another leg up as much as forming a top. Despite my Legacy LONG signal being bullish, I think the my prudent thing to do here is to monitor trends before waging any large bets.
- SPX Daily above the 20, 50, 100, 200 dma
- HYG:IEF just off 2017 highs (though beginning to weaken)
- Technical Model (cumulative) is above its 200 dma
- SPX 20 dma above the 50 dma for the 39th day, and above the 100 dma for the 47th day
- SPX 50 dma above the 100 dma for 26th day
- Weekly MACD is a BUY
- Technical Model positive
- $VIX in downtrend, is it nearly a low soon?
- HYG:IEF Daily technicals are a mess
- Oil’s technicals are a mess
- McClellan Oscillator is negative
- McClellan Oscillator has been negatively diverging for a month
- New Highs have been negatively diverging for a month
- Summation Index has been negatively diverging since summer
- SELL signals on 5 of 5 of Number of stocks above their 20/50 dma and these have been negatively diverging for a month
- Cumulative Technicals Model has not made a new high in 2016-2017
- SPX weekly has been negatively diverging since 2013/2014
- Monthly technicals very favorable for a stalling market
Levels to watch…
- 2270 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
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).
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