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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 in a spreadsheet and will appear at the top of the post each day.
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.
Time for another log-in free post. If you like posts like this, consider signing up for a free login at the end of this post. This log-in will allow you access to posts like these every trading day!
Still holding my Oct 21 UPRO puts bought Monday.
Did you see the SPX 20 dma is now below the 50 dma? Watch for the SPX to fall and remain below the 2124 100-day moving average level.
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: 12.7 [10.8 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. It ticked lower again today, and now has done so an impressive 14 of the last 17 trading days! 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 36th trading day in the row that the ratio of the two is below zero. If it continues on like this, the market may be in the process of putting in a significant top!
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 the model is much lower than the previous low last Friday, yet the market is still above, this is tremendously bearish! Also note that we are below the Brexit levels in the model, but still 153 SPX points higher in the market. This is crazy negative (bearish) divergence. In the very short term the model is more positive than SPX which I believe supports early week upside in the market.
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: Doji, indecision
Volume: Higher, at the steady 20 period moving average
Moving Averages: Close>20>100>50>200 period moving averages
% Bollinger Band: Mid range
Bollinger Band Width: Fairly compact
MACD: Bearish at a positive value, histogram ticked lower
ADX: Bearish, trending
RSI: Mid range
Volume: At the increasing 20 period moving average
Moving Averages: 50>20>Close>100>200 period moving averages
% Bollinger Band: Lower quartile
Bollinger Band Width: Expanding from he narrowest since Sept 2014 (yellow dotted line)
MACD: Bearish at a negative value, histogram ticked higher
Above the 2131 pivot.
Without a lower low, hard to justify anything on this chart regarding divergences. I did mark the technicals appropriately showing the decline from 9/12.
$VIX hourly may be nearing the end of the bearish move. I noted rising MACD histogram and positive divergence on the ADX +DI. Still would like to see more support before gaining confidence that the $VIX selloff is over. Also noteworthy is the final hour was bearish for $VIX, which can foreshadow the next day’s move. We are at the bottom of the 20 hour Bollinger Band, which may act as some support.
New Highs and McClellan Oscillator have been negatively diverging with the market (blue arrows) since early July and March respectively. What should be alarming to Bulls is the negative McClellan Oscillator for 34th day in a row.
3 more New Highs than New Lows, with another negative McClellan Oscillator day, notably worse than Thursday.
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.
More room on the downside as none of these are currently even in the green oversold zone.
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 has made its way to near the 20 dma, while technicals continue to deteriorate.
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
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.
More selling today, who would have guessed?
Oil may still make new 2016 lows by the end of the year.
Summary: Bulls vs. Bears
- Number of New Lows near zero
- Above the 2131 pivot level
- Hourly $VIX in a downtrend
Interesting things for the Bears…
- Cumulative Technical Model lower 14 of past 17 trading days
- The Performance of the Technical Model:SPX ratio has been negative for 36 straight trading days!
- Daily scores from the Technical Model negatively diverging through the months of July and August
- New Highs near zero
- McClellan Oscillator negative for the 34th straight trading day
- Number of stocks above their 20/50 dma with sell signals on 5 of 5 of these indicators
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 7 weeks
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 6 weeks
- HYG:IEF still near recent highs selling off
- SPX Daily bounced off the 100 dma, but below the 20/50 dma
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
- 2085 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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