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=========SIGNALS, NOT INDICATIVE OF POSITIONS=========
Based on Technicals Model:
401K/Long Positions: NO as of 6/12/2017
Based on Unrelated Signal:
BEARISH as of 6/20/2017
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.
Click the ‘Trader Platform’ Menu link for access to the Real-Time Technicals Model!
The new Technicals model (much more sophisticated than the original Daily version) is available in real-time for all subscribers to test it out. Green means bullish and Red is bearish. This is for the SPX at the 5-min, 10-min, 15-min, 30-min, 1hr, 2hr, 4hr time frames depending on your personal trading strategy. New models will be released in the future, working up to a composite model which would encompass several modeling techniques all in 1 chart (which should prove more profitable than using just a signal modeling technique)!!
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!
I bit the bullet, bought a bunch of SPX Sept Puts…
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]
Today was more volatile than 1.6% 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 lower today, for the 2nd day in a row. 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). The cumulative Technicals Model made a new All Time High on 2/14/2017, after lagging the market for more than a year! The model has regained the 200 dma that it lost in October 2016.
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. The ratio has been negative for the 4th day in a row.
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.
7 negative divergences since late April indicate a significant change in trend is near. Look how much weaker the model has been recently compared to SPX!
I have added a 5 day EMA to the Model (pink), and a new indicator called a Technicals Thrust. Similar to the Zweig Breadth Thrust, it looks for hard reversals. I have preliminary called a 0.50 gain within 5 days (with a peak above 0.35) a Technicals Thrust. 5 have taken place during the past year (noted with orange circles at the top of the chart), all had gains, while 3 of them had a prolonged bullish run.
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. 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 May 31, 2017
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. May made a new All Time High.
ADX: Bullish, trading
Candle: Slightly bullish
Volume: Well below the slimping 20 period moving average.
Moving Averages: Close>12>36>72>120 period moving averages
% Bollinger Band: Upper quartile
Bollinger Band Width: Steady at very narrow levels
MACD: Bullish at a positive value, histogram ticked higher for the 7th month in a row.
SPX Weekly from June 23, 2017
There are negative divergences back to 2013 on the ADX DI, RSI, and MACD histogram. These divergences have only steepened in the past year. The MACD divergence has been reformed in June. With June 19th’s All time High, new negative divergences have extended vs. the March 1st high.
ADX: Bullish, trending
Candle: Doji, indecision
Volume: Below the steady 20 period moving average.
Moving Averages: Close>20>50>100>200 period moving averages
% Bollinger Band: Upper band
Bollinger Band Width: Narrowing
MACD: Bullish at a positive value, histogram ticked lower for the 2nd week in a row
With June 19th’s All Time High, negative divergences are in place for ADX DI, RSI, MACD and MACD histogram. HO’s mean Hindenburg Omens. Orange ones mean that the McClellan was positive, Red is the real deal, the McClellan was negative.
ADX: Bullish, trading
RSI: Mid range
Candle: Doji, indecision
Volume: Below the steady 20 period moving average.
Moving Averages: Close>20>50>100>200 period moving averages
% Bollinger Band: Mid band
Bollinger Band Width: Narrowing to near historical levels
MACD: Bearish at a positive value, histogram lower for the 4th day in a row
After trading in the 2428-2444 trading range for 11 trading days it broke out to the upside as expected Monday. Now however, price has retreated right back into the trading range both for the remainder of the week. At the peak Monday there were minor negative divergences which led my opinion that there would be a pullback like we saw Tuesday.
I still believe it is more likely than not that a new All Time High is reached, based on how strong the technical indicators were at the last peak. Need some larger negative divergences to form! Negative divergences between the last 2 highs suggest some downside remains in the short term.
VIX was lower today, with a MACD SELL signal.No positive divergences seen at today’s lows so a lower low is more likely than not before a reversal takes place.
High-Low was +16 today. The McClellan Oscillator was negative (4th day in a row). The SPX A-D line is above its 20 EMA, but off its All Time High set on 6/19/2017.
The summation index is in positive range, but topped in July 2016. Negative divergences are shown going back to 2016.
More SPX Breadth
More breadth indicators, note the negative divergences since early 2016 on many of these. 3 of 5 of these signals are BEARISH.
Intermediate-Term Breadth Momentum Indicator: A SELL signal was given on 6/22/2017.
Swenlin Trading Oscillator: A SELL signal was triggered 6/21/2017.
Bullish Percent Indicator: A BUY signal was triggered on 6/5/2017.
Percent with PMO above Zero: A BUY signal was given on 6/1/17. Potentially topping?
Percent with PMO giving BUY signal: A SELL signal was given on 6/16/17.
SPX %above MA
The stochastic indicators have signaled a BUY for 5 of the 5 indicators.
These indicators were somewhat higher today.
UST10Y-2Y from June 23, 2017
Each week I will take a look at the UST10Y-UST2Y, though it will be the daily chart. This chart symbolizes whether the yield curve is supporting economic expansion (by increasing the spread), or providing additional head winds (decreasing). The chart looks poor with technicals blowing out as the ratio falls below its 200 dma toward its lower Bollinger Band. Will take some time to bottom from this. All prior positive divergences except for MACD histogram have broken. A lower low is expected. Trump’s bump has been erased and then some.
What’s interesting here, the spread is at 0.81, while recessions since the 1970’s started when the spread was near zero or negative (shown below). If that trend is right, we are a while away from that taking place. You can see the trend is lower over the past several years, but we are currently at a top or consolidating. The bull leg started before the election, as the tide was turning positive for Trump support. Looking at the short term, there has not been a new high or low put in recently, so no divergences to compare to make a prediction.
TLT:TIP Daily from June 23, 2017
Deflation risk which steadily climbed in Spring has now started to jump this summer.
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 made a bounce, back inside its lower Bollinger Band and above its 200 dma. WARNING!! Technicals remain weak enough to not expect much more than a brief bounce.
At the recent high on 3/2/2017, negative divergences have been strengthened since late 2016.
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
Oil was slightly higher today but still below the May 5th low! Technicals suggest that the down trend is not quite finished yet.
It’s performance during the seasonably strong Spring and early Summer has been very poor. Perhaps a major leg down in oil is due in the coming months?
Summary: Bulls vs. Bears
The trading signal based on my Proprietary Technicals Model continues its NEUTRAL stance since 6/12/17. And my favorite trading signal went BEARISH on 6/20/17. And today, I bite the bullet and bought a bunch of SPY September Puts. I still believe a higher high may come, based on how strong SPX hourly technicals were at the last high, and a negative divergence would be nice. However at the Daily and Weekly scales, all the negative divergences are in place.
I want to also point out that the SPX Daily Bollinger Band is near its historical tightest. This fits my volatility model which puts the market at 1.3% more volatile than every trading day since 1990. Things happen, sometimes quickly in this situation. A lot of time I have observed that the first big move is a fake, so in this case a jump to a new All Time High, only to quickly reverse and crater. I am not saying that’s exactly what will happen, but I will be watching for it.
Yesterday I started talking about Hindenburg Omens, look it up if you are not familiar with it. It is usually applied to the NYA, but I calculated the amount of stocks that have to have new highs and lows for the SPX, and use the SPX McClellan. Anyways I like it because its a technical indicator of crosswinds. There were 2 in late May and early June, though McClellan was positive. This was a sign of strong rotation. But what piqued my curiosity were the 3 consecutive true Hindenburg Omens 6/20-22. After such a run up since the election, the increasing deflation on TLT:TIP, weak oil during its strongest season, and tightening yield curve, this really shouts WARNING to me.
My proprietary Technicals Model has 7 negative divergences vs. SPX since late April. Something big is brewing.
VIX, although well off May-June lows shows low trend. But this too is a positive divergence vs. SPX as SPX is near All Time Highs and VIX is off its lows. Breadth indicators remain in the green for the most part, however are much weaker than prior legs up in the market. Oil looks to need one more low before any hope of a tradable bounce.
- The SPX A-D line is above its 20 EMA, and made another All Time High on 6/19/2017.
- SPX Daily above the 20, 50, 100 and 200 dma
- Cumulative Technicals Model made a new All Time High on 6/21/2017
- Technical Model (cumulative) is above its 200 dma
- SPX 20 dma above the 100 dma for the 151st day
- SPX 50 dma above the 100 dma for 130th day
- SPX 20 dma above the 50 dma for the 36th day
- VIX SELL signal
- BUY signals on 5 of 5 of Number of stocks above their 20/50 dma
- Technicals Model is negative
- SELL signals on 3 of 5 of other Breadth indicators
- McClellan Oscillator is negative
- UST10Y-2Y downtrend
- Oil’s lower, but is a turn higher coming after another low?
- Technicals Model is diverging negatively 6 times since mid April
- HYG:IEF technicals are weak
- HYG:IEF well off its recent peak from March 2nd, negatively diverging from SPX
- Summation Index has been negatively diverging since last summer
- SPX weekly has been negatively diverging since 2013/2014
- Monthly technicals were favorable for a stalling market
Levels to watch…
- 2444 pivot
- 2428 pivot
- 2411 pivot
- 2385 pivot
- 2336 pivot
- 2321 pivot
- 2286 pivot
- 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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