Friday July 29th, 2016

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

First Thoughts…

This week’s login free post comes at a great time. First, not only will I show the Weekly chart, but its time for the Monthly chart too! And second, we need to look under the hood of the recent sideways price action.

Technicals Model (proprietary)

The first chart below is the cumulative Technicals Model dating back to 2006. The last day it even ticked lower was 6/29/2016! Here you can see the performance (in blue vs. SPX in black) all the way back to 2006!

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 5th 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!

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. Note that this current negative divergence is very steep, and continues to accelerate closer to negative values.

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.

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.

SPX Monthly

M

ADX: Bearish, trading range

RSI: Upper quartile

Candle: Bullish to new All Time Highs

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

Moving Averages: Close>12>36>71>120 period moving averages

% Bollinger Band: Upper quartile

Bollinger Band Width: Very tight, about as tight as they come

MACD: Bearish at a positive value, histogram ticked higher for the 5th month in a row

SPX Weekly

W

ADX: Bullish, trading range

RSI: Upper quartile

Candle: Djoi, indecision

Volume: Quite low, well below the slackening 20 period moving average

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

% Bollinger Band: Above the top Bollinger Band for the 3rd week in a row!

Bollinger Band Width: Ticked higher, but still very narrow

MACD: Bullish at a positive value, histogram ticked higher for the 5th day in a row

SPX Daily

D

ADX: Bullish, trending

RSI: Upper quartile

Candle: Bullish hammer

Volume: Higher, at the leveling 20 period moving average

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

% Bollinger Band: Upper quartile

Bollinger Band Width: Ticked lower

MACD: Bearish at a positive value, histogram ticked lower 11th day in a row

SPX Hourly

H

Above the 2131 pivot

ADX: Bullish, trading range

RSI: Upper quartile

Volume: Mixed through the day

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

% Bollinger Band: At the top

Bollinger Band Width: Quite narrow

MACD: Bullish at a positive value

VIX Hourly

VIX

After 3 weeks of positive divergence on the RSI and MACD, it looks as though the $VIX had a successful backtest of the blue downtrend line and is now in an uptrend. RSI had been back above 50 for several recent trading days. As we have been say during the past couple of days, with a negative cross on the MACD and RSI below 50, $VIX may see further weakness in the near term. Now its time to look for that short term trend to reverse next week.

SPX Breadth

Breadth

New Highs and McClellan Oscillator  have been negatively diverging with the market (blue arrows) since early July and March respectively.  Another good day for New Highs, though these have been diminishing over the last few trading days. But what should be VERY alarming to Bulls is the negative McClellan Oscillator for a thrid day in a row!

SPX %above MA

MA

Percent of SPX stocks above their 20/50/200 have been negatively diverging with the market (blue arrows), though now most of these are negligible. Alarm bells should be going off for Bulls again today as the Percent of Stocks above their 50 dma remains back in the white middle range. The stochastic indicator for the entire SPX percent above their 20 day ma has rolled over to a SELL, while the others are close to doing so.

Huge negative divergence seen on the Full Stocastics (red arrows).

NOTE, that the market can stay in the BUY or SELL range (green or red) for quite some time.

TLT:TIP Daily

TLT_TIP

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 Daily

HYG_IEF

HYG:IEF ratio had its 5th fairly significant loss in a row on rising volume. Since it had several recent negative divergences before this past week, HYG:IEF could be in a new downturn.

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

Oil Daily

Oil

Oil is toast, making its high on 6/8, over a month ago. Nothing favors new 2016 highs for oil here, not seasonality, nor technicals. Oil is at Summer lows. It’s been a broken record, but correct.

Yikes, Oil has not yet been able to bounce higher, causing renewed weakness on technical indicators while trading toward the 200 day MA around $40.49. Perhaps we cross the 200 dma below $40 before a tradeable bounce occurs. Oil sure seems destined to make new 2016 lows by the end of the year.

And Friday we saw a touch of the 200 day MA as we have been looking for, but we could go lower before a tradeable bounce materializes with little to no divergence yet on the daily chart.

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Summary: Bulls vs. Bears

Today I want to discuss looking at the market through a lens. Like a microscope, we have the ability to select the degree we look at the market. First rule, is always look big picture to small picture. This I learned early on in my own line of work. Why? Because the big picture drives the small picture. Also, a signal seen on the smaller scale can lead to much different results depending on whats going on in the larger scale.

I wanted to discuss this today as we have a fresh Monthly and Weekly chart. Let’s start with the Monthly. What does it say? Well ADX is in a trading range. So the current move does not have momentum at this scale. Its a blip right now. We are at new highs, but all indicators show significant negative divergences!! Finally, the Bollinger Bands are quite narrow so a large move AT THIS SCALE is expected in the months to come.

When I drill down to the Weekly scale, the indicators tell the same exact story. A big move, which has not yet materialized, is coming. On the daily technical indicators tell that the trend higher in July is weakening.

 

Still Bullish or Not proven Bearish

  • Cumulative Technical Model though decelerating still has not had a negative day in July 2016, let alone any sniff of sustainable selling pressure!!
  • Number of new highs still fairly respectable
  • Most all trend indicators still positive
  • 3 weeks in a row closed above Top Weekly Bollinger Band!
  • Significant Daily SPX negative divergences had not previously materialized yet, though one can be said to have been put in Sunday night with the new high that was seen in all hours trading

Interesting things for the Bears

  • The Technical Model:SPX ratio has been negative for 5 straight days!
  • Daily scores from the Technical Model have been negatively diverging through the month of July, and is nearing negative values
  • HYG:IEF really weakening with Oil
  • McClellan Oscillator closed negative for the 3rd straight trading day
  • Number of stocks above their 20/50 dma are weakening a high clip
  • $VIX broke the downward blue trendline significantly, and had a successful backtest
  • $VIX had the expected pull back, and appears ready to reverse higher next week

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

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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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