Friday November 10th, 2017

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Stormchaser80, L.L.C.
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=========SIGNALS, NOT INDICATIVE OF POSITIONS=========
My Best Signal:
BEARISH since 10/17/2017 @ SPX 2559.36

Signal Based on Technicals Model:
BEARISH since 11/9/2017 @ SPX 2584.62

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

The Modeling Feature is down as my data source pulled the plug. I found a work around but will need to find the time to do the coding.

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…

So it begins???

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

Recent trading has been more volatile than 4.8% of all trading periods 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 6th 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 11/10/2017! The model is well above its 200 dma that it lost briefly 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 13th 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.

There is negative divergence in the Model vs. SPX between late April and mid October, as well 1 in September and 3 since October.

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 October 31st, 2017

On the monthly scale, the market has been expanding since a 2015-2016 consolidation period. Its easy to see with negative divergences from the end of 2013 and 2014 on ADX DI, RSI, MACD and MACD histogram. September 2017 made a new All Time High.

ADX: Bullish, trading

RSI: Overbought

Candle: Bullish

Volume: Well below the declining 20 period moving average.

Moving Averages: Close>12>36>72>120 period moving averages

% Bollinger Band: Upper range

Bollinger Band Width: Steady

MACD: Bullish at a positive value, histogram ticked lower for the 4th month in a row.

SPX Weekly from November 10, 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 11/7’s All time High, new negative divergences have extended vs. at least as far as the March 1st high.

ADX: Bullish, trending

RSI: Overbought

Candle: Doji, indecision

Volume: Above the steading 20 period moving average.

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

% Bollinger Band: Near the Upper Band

Bollinger Band Width: Increasing from near historically low levels

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

SPX Daily

With 11/7’s All Time High, negative divergences are strengthened for ADX DI, RSI, MACD and MACD histogram, most peaked in March. HO’s mean Hindenburg Omens. Orange ones mean that the McClellan was positive (likely just a strong rotation), Red is the real deal, the McClellan was negative (Likely pre-drop selling).

ADX: Bullish, trending

RSI: Upper Quartile

Candle: Doji, indecision

Volume: Above the increasing 20 period moving average.

Moving AveragesClose>20>50>100>200 period moving averages

% Bollinger Band: Upper band

Bollinger Band Width: Tightening toward historic levels

MACD: Bearish at a positive value, histogram falling for the 2nd day in a row

SPX Hourly

It feels that not long ago we were talking about the 2575 pivot for SPX, and now its at the 2594 pivot. SPX hit its 2575 pivot in October and has been negatively diverging since. And Thursday is the beginning of what I believe will be a swing trade downturn. A large bullish reversal occurred below the 2575 pivot on weak positive divergences.

VIX Hourly

VIX had a big day, with hourly MACD on a BUY signal. Notice that VIX is well off its All Time Lows set in late July? At today’s highs, no significant negative divergences have formed yet.

VIX 15-min Intraday

15-min VIX chart shows positive divergences for most indicators at last Friday’s lows, which have been running for 6 trading days. Finally Thursday, negative divergences were put in place at the highs, allowing for a retrace lower.

VIX 442-hr Which Side of Trade? From 11/10/2017

Traders who prefer to trade one side, should be trading with the BULLS.

This chart attempts to use a long term average for VIX to identify Bull markets. I use a 442 hour EMA of VIX as that is approximately how many trading hours there are in a quarter of a year. When this value is below 17.5, those who like to trade one side at a time should make sure to be trading the long side. This chart makes no comment about the other times, meaning the inverse is not necessarily true.

SPX Breadth

High-Low was +12 today. The SPX McClellan Oscillator was negative for the 13th day in a row. The SPX A-D line is above its steadying 20 EMA, with its ATH made on 11/8/2017.

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. 5 of 5 of these signals are BEARISH.

Intermediate-Term Breadth Momentum Indicator:  A SELL signal was given on 10/23/2017.

Swenlin Trading Oscillator: A SELL signal was triggered 11/10/2017.

Bullish Percent Indicator: A SELL signal was triggered 10/26/2017, bottoming?

Percent with PMO above Zero: A SELL signal was given on 10/26/17.

Percent with PMO giving BUY signal: A SELL signal was given on 10/16/17, bottoming?

SPX %above MA

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

Participation was mixed today.

UST10Y-2Y from November 10, 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 made a lower low in November, formulating significant positive divergences vs. the June low. The yield curve should steepen here which is bullish for the economy.

What’s interesting here, the spread is at 0.67, 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 November 10, 2017 

Deflation risk which steadily climbed in Spring, jumped in early summer before going sideways.

The bond market Deflation vs. Inflation metric (iShares Barclays 20+ Year Treasury Bond Fund vs. iShares Barclays TIPS Bond Fund). Values early in 2015 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

A new uptrend high last Wednesday above all major moving averages closing at its top Bollinger Band. In doing so, negative divergences formed across the board vs. the September high. This sets the stage for a reversal lower, with the ratio back down below its 20 dma, and now below its 50/100/200 dma. Today a recovery above the lower Bollinger Band. Key chart to watch!

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

Oil Daily

Oil’s obvious bull run could be in a wave 5. It broke some negative divergences Monday while topping its upper Bollinger Band.

While I do not think this move will sustain itself, momentum riders should continue with positions as ADX is well above 20, until new negative divergences strengthen and are put in place. Too late for new bulls as RSI has already been overbought.

It’s performance during the seasonably strong Spring and Summer has been very poor. Perhaps a major leg down in oil is due in the coming months?

Summary: Bulls vs. Bears

Thursday’s price action seems different than past retrace lower. It was swift, with good gains in VIX, and came after prolonged negative divergences on SPX hourly. My signal based on my Technicals Model went back BEARISH Thursday, while the best indicator still remains bearish. Today, a recovery day as one would expect.

Got the fifth recent Hindenburg Omen on the SPX Monday. Had 13 of these signals during the summer, so its likely that a major market top is in or close by.

My proprietary Technicals Model was higher for the 6th day in a row, with a positive divergence at 9/1’s peak vs. SPX, foretelling of this bullish run. The Model made a nominal new high in early October which could be counted as a double top. The Cumulative version of the Technicals Model made a new All Time High 11/10. My statistically driven Volatility Model may be waking up from historically low levels. I foresee further volatility developing based on this and historically narrow SPX Daily Bollinger Bands.

SPX daily is above all major moving averages and made a new ATH Tuesday, though negative divergences are set from the March 1st high. At the hourly scale, at Thursday’s lows, weak positive divergences were put in and resulted in a strong rally.

VIX finished much higher today, on a hourly MACD BUY signal. At today’s highs, no significant negative divergences were in place for the hourly chart. On the 15-min chart, no new divergences to share.

Market Internals, participation and breadth indicators were mixed today. Many of these are in positive territory, yet are well off peaks from earlier in the year. SPX A-D line made a new All Time High on 11/8, obviously above its 20 dma which may be flattening. SPX McClellan made its 13th negative reading in a row.

Oil made a higher high than the September peak, wiping out any negative divergences vs. its September high. Still not a great place to buy here unless you like jumping in front of a freight train :-).

HYG:IEF formed negative divergences across the board with its peak last Wednesday. It has already rolled over losing all major moving averages along at the bottom Bollinger Band. Even with today’s recovery candle, this is a bad sign for the markets.

Bullish

  • The SPX A-D line made an All Time High on 11/8/2017
  • The SPX A-D line is above its steadying 20 EMA
  • SPX Daily above its 20, 50, 100 and 200 dma
  • Cumulative Technicals Model made a new All Time High on 11/10/2017
  • Technical Model (cumulative) is above its 200 dma
  • SPX 20 dma above the 50 dma for the 41st day
  • SPX 20 dma above the 100 dma for the 249th day
  • SPX 50 dma above the 100 dma for 228th day
  • SPX Monthly continue in a upward run
  • Strong run in SPX Weekly
  • Oil busted negative divergences and has room to run higher
  • Technicals Model is positive for 6th day in a row

Bearish

  • McClellan Oscillator negative for the 13th day in a row
  • HYG:IEF likely topped last week with negative divergences and now lost support of all major moving averages
  • SELL signals on 5 of 5 of other Breadth indicators
  • SELL signals on 5 of 5 of Number of stocks above their 20/50 dma
  • UST10Y-2Y (Yield curve flattening may be improving again though)
  • There is negative divergence in the Model vs. SPX between late April and mid September, as well as 2 in October
  • Summation Index has been negatively diverging since last summer
  • SPX weekly has been negatively diverging for years

Levels to watch

  • 2594 pivot
  • 2575 pivot
  • 2525 pivot
  • 2479 pivot
  • 2456 pivot
  • 2444 pivot
  • 2428 pivot
  • 2411 pivot
  • 2385 pivot
  • 2336 pivot
  • 2321 pivot
  • 2286 pivot
  • 2270 pivot
  • 2212 pivot
  • 2177 pivot
  • 2131 pivot
  • 2116 pivot
  • 2085 pivot
  • 2070 pivot

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

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