Friday June 2nd, 2017

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=========SIGNALS, NOT INDICATIVE OF POSITIONS=========
Based on Technicals Model:
401K/Long Positions: YES

Short Positions: NO

Based on Unrelated Signal:
BULLISH
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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.

=====================MODELING=====================

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)!!

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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…

Is this rally long in the tooth?

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 14.6% 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.

MOMO

Technicals Model (proprietary)

The first chart below is the cumulative Technicals Model dating back to 2006. The Model was higher today, for the 9th 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 positive for the 2nd 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.

4 negative divergences since late April indicate a significant change in trend is near.

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

RSI: Overbought

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 2, 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 erased. With June 2nd’s All time High, new negative divergences have appeared vs. the March 1st high.

ADX: Bullish, trending

RSI: Overbought

Candle: Bullish

Volume: Low, below the slackening 20 period moving average.

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

% Bollinger Band: Upper band

Bollinger Band Width: Nearly steady

MACD: Bullish at a positive value, histogram ticked higher for the 2nd week in a row

SPX Daily

With June 2nd’s All Time High, negative divergences are now in place for ADX DI, RSI, MACD and MACD histogram.

ADX: Bullish, trading

RSI: Upper quartile

Candle: Bullish!

Volume: At the the declining 20 period moving average.

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

% Bollinger Band: Upper band

Bollinger Band Width: Rising

MACD: Bullish at a positive value, histogram higher for the 2nd day in a row

SPX Hourly

SPX consolidated near the 2411 pivot and then shot past the 2428 pivot Wednesday and Thursday. Today SPX slowly rose approaching the 2444 pivot. Note negative divergences on all indicators. A pullback in the short term is likely.

VIX Hourly

VIX is on a MACD SELL right now, but not a significant loss today. VIX made a double low with the early May low. A positive divergence on RSI means a short term bounce is possible.

SPX Breadth

High-Low was +135 today. The McClellan Oscillator was positive. The number of New Lows recently through Wednesday is greater than in April. The SPX A-D line is once again above its 20 EMA, making a new All Time High today.

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. 4 of 5 of these signals are BULLISH.

Intermediate-Term Breadth Momentum Indicator:  A BUY signal was given on 5/23/2017.

Swenlin Trading Oscillator: A BUY signal was triggered 5/22/2017, but is it topping?

Bullish Percent Indicator: A SELL signal remains, but it is nearing a BUY

Percent with PMO above Zero: A BUY signal was given on 6/1/17.

Percent with PMO giving BUY signal: Gave a BUY signal on 5/26/17.

SPX %above MA

The stochastic indicators have signaled a SELL for 3 of the 5 indicators. 

Small Caps indicators all rose significantly today, while SPX indicators were little changed today.

UST10Y-2Y from June 2, 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 and lower Bollinger Band. Will take some time to bottom from this. Now positive divergences have formed across the board, the yield curve may start to steepen once again.

What’s interesting here, the spread is at 0.93, 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 2, 2017 

This spring has been characterized as increasing Deflation Risk, but it has been muted until recently.

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 gapped lower and ended the day well below yesterday’s levels. Technicals however remain fairly weak. Notice how far off HYG:IEF is to its March 1st recent high.

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 Daily

Oil is slackening, having another down day on such a bullish day for the markets. 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 bullish trend continued Friday as expected. Breadth has become strong once again, including a new All Time High on the SPX A-D line today to match the new All Time High for SPX price. Internals show the small caps are looking better than SPX, however.

With as much excitement for the BULLS, its easy to lose sight of what’s going on behind the curtain. The yield curve continues to weaken (but I am watching positive divergences) and oil had 2 down days on strong market days Thursday and Friday (and has had a terrible Spring when its supposed to be the strongest). TLT:TIP is accelerating meaning deflation risk needs to be monitored. HYG:IEF made significant losses today, highlighting a shift to safer instruments which has been occurring since March 1st. Speaking of March 1st, significant negative divergences on all technical indicators are in place on both the Weekly and Daily charts. On the hourly scale, SPX made negative divergences on all indicators meaning a pullback in the short term is likely. And finally, 4 negative divergences on my proprietary Technicals Model have occurred vs. SPX since mid April, a sign that a significant change in trend may occur soon.

Both my trading indicators remain BULLISH, though mounting evidence suggests it’d be wise to take some profits next week.

Bullish

  • SPX Daily above the 20, 50, 100 and 200 dma
  • Cumulative Technicals Model finally made a new All Time High on 5/2/2017
  • Technical Model (cumulative) is above its 200 dma
  • SPX 20 dma above the 100 dma for the 136th day
  • SPX 50 dma above the 100 dma for 115th day
  • SPX 20 dma above the 50 dma for the 21st day
  • SPX weekly broke MACD negative divergence
  • UST10Y-2Y downtrend may be ending
  • McClellan Oscillator is positive
  • Technicals Model is positive
  • BUY signals on 4 of 5 of other Breadth indicators
  • VIX bearish MACD, but may bounce soon
  • Weekly MACD is a BUY

Bearish

  • SELL signals on 3 of 5 of Number of stocks above their 20/50 dma
  • Oil’s bull run over?
  • Technicals Model is diverging negatively 4 times since mid April
  • HYG:IEF technicals are weak
  • HYG:IEF well off its recent peak from March 1st, 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

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Feb-March 2016 Posts: https://stormchaser80.wordpress.com/ 

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