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401K/Long Positions: Yes
Short Positions: No
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’ 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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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: 3.2 [2.7 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 5 days 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 currently). I also want to point out that the cumulative Technicals Model has not made a new All Time High in 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. Today is the 51st trading day in the row that the ratio of the two is below zero!
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 3 months.
Comparing the slope of the Technicals Model vs. SPX today, the Model is more bullish, suggesting more gains could be ahead in the markets. But 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
Candle: Inside bearish day with decent wicks on both ends
Volume: Higher, above the steady 20 period moving average.
Moving Averages: Close>20>50>100>200 period moving averages
% Bollinger Band: Middle
Bollinger Band Width: Ever so gradually narrowing
MACD: Bearish at a positive value, histogram ticked lower for the 9th consecutive week
ADX: Bearish, trading
RSI: Mid range
Candle: Bearish but some indecision with long wicks on each side
Volume: Well above the rising 20 period moving average.
Moving Averages: 50>20>Close>100>200 period moving averages
% Bollinger Band: Middle
Bollinger Band Width: Narrowing
MACD: Bullish at a negative value, histogram ticked lower
Above the 2131 pivot.
This sideways move during the past several weeks has not been impulsive in any direction, and thus is working off the negative momentum from earlier in September. I drew yellow trend lines in an effort to try to capture the next move.
We have seen a couple of false penetrations of the lower portion of the triangle. We are beginning to get into a narrow range. No matter which was this thing resolves, I want to see a significant break of either the top or bottom thick yellow lines, followed by a retest, then resumption of the new trend.
This may have started today. Notice how price escaped the thick yellow converging channel, then was drawn back to it, before settling lower. A lower open Sunday night/Monday could set the stage for a significant selloff!
Not to be outdone by the hourly SPX triangle, a triangle also appears in the hourly $VIX chart denoted in the blue lines. $VIX jumped above the first blue line but fell back into the triangle.
Going for higher $VIX early next week is the MACD positive cross denoted by the green buy signal. There were no negative divergences on any displayed indicators, with the RSI closing a little above 50.
The last hour was somewhat bullish for $VIX, which oftentimes sets the stage for the next trading day.
High-Low was +5 today once again showing a few stocks doing quite well. However, the McClellan Oscillator accelerated further negative for the 5th day in a row.
SPX %above MA
The stochastic indicators have signaled a SELL for 3 of the 5 indicators. Huge negative divergence seen on the Full Stochastics (red arrows) since March.
Here we see that the majority of stocks are not doing so great, but are we beginning to trend higher? Hard to tell thus far.
Did TLT:TIP put in a final low? See the long wick lower, followed by a close in positive territory? That makes me think that deflation fears will build here ahead.
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 ratio was higher today, making a new high since the February uptrend. As I have been saying, the technicals are negatively diverging again. Major Greed going on!
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
This is what I am calling the relief rally before the turn. Still no new high. But even if one occurs, it will be on negative divergence. I guess at this point we can say that Oil has not done anything since May 2016.
Today’s losses erased Thursday’s gains. Perhaps we are putting in a top?
Oil is toast, making its high on 6/8, more than 3 months ago. Nothing favors new 2016 highs for oil here, not seasonality, nor technicals. Oil may still make new 2016 lows by the end of the year.
Summary: Bulls vs. Bears
Final Thought: Risk may be shifting to off. 5 days in a row of negative readings on the Technicals Model. SPX hourly showed that we may be headed out of the triangle to the downside, yet the $VIX has to jump back above the triangle for that to come to fruition. Breath continues to wane, while number of stocks above their 20/50 dma are on the verge of either shooting higher or sharply declining. TLT:TIP shows deflation fears may be creeping back into the market.
- Number of New Lows near zero
- Above the 2131 pivot level
- SPX Daily above 100 and 200 dma
- HYG:IEF new 2016 high
Interesting things for the Bears…
- $VIX trending higher
- Technical Model negative for 5th day in a row
- Long term trend of the number of New Highs decreasing
- The Performance of the Technical Model:SPX ratio has been negative for 51 straight trading days!
- Daily scores from the Technical Model negatively diverging through the months of July-September
- New Highs nearing zero
- SELL signals on 3 of 5 of Number of stocks above their 20/50 dma
- SPX 20 dma below the 50 dma for the past 17 trading days
- SPX Daily below the 20 and 50 dma
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 10 weeks
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 9 weeks
- Weekly MACD is a SELL
- Monthly technicals very favorable for a stalling market
- Cumulative Technicals Model has not made a new high in 2016
- Oil may be topping?
Levels to watch…
- 2131 pivot level
- A break below 2112 SHOULD stick the fork in this entire uptrend from February, this occurred on 9/12
- 2116 is the next pivot level lower
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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