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=========SIGNALS, NOT INDICATIVE OF POSITIONS=========
401K/Long Positions: No
Short Positions: Yes
I have identified my BUY and SELL signals for LONG positions, with 1 model member. It will become a lot more robust, and a lot less whipsaws when I develop an ensemble of 999 members this upcoming winter. These signals are the result of several scripts and a very large Excel Spreadsheet on my desktop. So I will post the ‘final answer’ above which is what most of you want anyways!
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.
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!
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This is what I wrote Thursday:
“I sold out of my short position about 15 min before the close on Thursday, just off the lows of the day as luck would have it. I did so due to the fact that VIX was up substantially today, and price was right at the support of the 2085 pivot and 200 dma. The October payroll report is due in the morning, along with several Fed speeches and the Rig count through the day. Quite a bit of news is expected tomorrow, which could potentially help reverse the momentum. Sure I could be wrong, but I felt with positive divergences at the SPX 5-min scale, I should listen to my gut to take profit after a nice gain. This is not an environment I feel comfortable in going LONG, so I will sit in cash until either momentum turns significantly enough to flip a signal to go LONG, or a new SHORT position becomes evident after some sort of bounce.”
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: 9.0 [8.7 single day]
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 last negative day was Today (now 25 days in a row)! This is worse than any time during the 2008-2009 crash! 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. In fact, it HAS FALLEN below the 200 day moving average once again, which supports a bear market, if this persists!
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 70th trading day in the row that the ratio of the two is below zero! This too is worse than at any time! The ratio is giving a SHORT signal since its below -200%!
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 significant deterioration has taken place in the comprehensive list of SPX individual stocks’ technicals in the past 4 months. But we must keep an eye on potential positive divergence vs. early September.
Comparing the slope of the Technicals Model vs. SPX today, the Model is 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.
ADX: Bearish, trading
RSI: Mid Range
Volume: At the steady 20 period moving average
Moving Averages: 20>Close>50>100>200 period moving averages
% Bollinger Band: Lower quartile
Bollinger Band Width: Gradually tightening
MACD: Bearish at a positive value, histogram ticked lower for 13th week in a row
ADX: Bearish, trending
Candle: Bearish, well off highs, but an inside day with no new lows
Volume: Below the slackening 20 period moving average
Moving Averages: 50>100>20>200>Close period moving averages
% Bollinger Band: Below the bottom of the band
Bollinger Band Width: Increasing
MACD: Bearish at a negative value, histogram ticked lower for 8th day in a row
At the 2085 pivot.
Positive divergences are seen on the ADX DI, RSI, MACD and MACD histogram at Thursday’s lows. A bounce is likely in the short term.
After the explosion higher in $VIX since 10/24, I would not want to be long $VIX here. Today we put in the higher high that we were looking for, but look at the negative divergences on ADX DI, MACD, MACD histogram and especially RSI at the highs of the day.
High-Low was -11 today. The McClellan Oscillator was negative for the 24th day in a row, not quite as bad as the past couple of days. With the summation index below zero, shorts will be quite fruitful when short term signals align.
SPX %above MA
The stochastic indicators have signaled a SELL for 5 of the 5 indicators. Huge negative divergence seen on the Full Stochastics (red arrows) since March.
Positive divergences remain with only 2 of the 5 of these indicators comparing current levels to early September.
TLT:TIP has shown weakness after the record high for deflation fears occurred on 7/11/2016. Note we are still at the 2008 peak 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 ratio closed lower today, at the support of the 100dma. It is possible we are near a short term bottom as volume was significantly lower during the past 2 days.
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
Oil closed lower today. It too is near support, of the 200 dma. This could prove to favor a short term bounce. Though we cant be lulled into a bullish stance yet given the lack of positive divergences at this scale on any of the shown technicals, with another close below the bottom Bollinger Band.
A collapse is still possible based on negative divergences since summer in the technical indicators for the end of 2016.
Summary: Bulls vs. Bears
Final Thought: Not a whole lot changed Friday. Our proprietary Technicals Model is still giving a SHORT signal. I however am still in cash after exiting near the lows at the end of Thursday. I just saw too many positive divergences forming, when we were near key level of 2085 and the 200 dma.
The hourly SPX shows positive divergences at the lows of the day Thursday, while hourly VIX may have completed its uptrend from 10/24 given the significant negative divergences at highs today, especially RSI!
Our proprietary Technicals Model had another horrible day, continuing the longest losing streak since its 2006 starting point. Looking at the cumulative view of the model, its been below its 200-day moving average since 10-19-2016, possibly signally a bear market after a head-fake during the middle of 2016.
- SPX Daily at 200 dma and near support of 2085 pivot
- Positive Divergence vs. September Low on McClellan Oscillator
- Positive Divergence vs. September Low on 2/5 Percent Above Moving Averages
- Positive Divergence vs. September Low on Technicals Model
- $VIX uptrend may be complete
- Cumulative Technicals Model has not made a new high in 2016
- Technical Model (cumulative) below its 200 dma every day since 10-19-2016
- Technical Model negative for 25th day in a row, unprecedented!
- SELL signals on 5 of 5 of Number of stocks above their 20/50 dma
- Below the 2116 pivot level
- HYG:IEF very bearish, but short term bounce coming?
- Oil is quite bearish, but short term bounce coming?
- Number of New Lows increasing
- Long term trend of the number of New Highs decreasing
- The Performance of the Technical Model:SPX ratio has been negative for 64 straight trading days, unprecedented!
- Daily scores from the Technical Model negatively diverging through the months of July-September
- SPX 20 dma below the 50 dma for the past 36 trading days and below the 100 dma for the past 6 trading days
- SPX Daily below 20, 50, 100 dma
- SPX 20/50 dma are slopping downward
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 14 weeks
- Weekly close below the 20 week ma for the 4th time since Brexit
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 13 weeks
- Weekly MACD is a SELL
- Monthly technicals very favorable for a stalling market
Levels to watch…
- 2116 pivot level
- 2087 SPX 200 dma
- 2085 is the next pivot level lower
- 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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