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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.
Today’s my birthday. All I want for my birthday is you to tell your family and friends who may be interested in the market about my site. I enjoy seeing the number of people who do visit, and really draw my inspiration to continue based on it.
And I have a gift for you, a login free post to see what we provide every trading day. I also will be including Monthly and Weekly analysis! Please enjoy. If you don’t already have a free login, all you have to do is take 15 seconds to fill out the form at the bottom of this post, which will enable you to view posts like these every trading day!
I have put some crumbs in some sections so the folks who don’t have access to daily posts can see some of what they are missing!
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: 6.5 [6.9 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 Monday. 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 46th 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 significant deterioration has taken place in the comprehensive list of SPX individual stocks’ technicals in the past 3 months.
Thursday I said “Today was slightly lower, much less so than the market though. Theoretically this is bullish for the market, but 1 or 2 day divergences are not the best of signals.”
Dead right, again! Comparing today’s model performance versus the market, indicates to me perhaps slightly below market performance, slightly bearish for the market, but 1 or 2 day divergences are not the best of signals.
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.
I LOVE doing Monthly and Weekly Charts, but its relatively rare that its ready to analyze. So let’s get at it!
ADX: Bearish, trading
RSI: Upper Quartile
Candle: Doji, second one in a row, indecision. Bounced off the 12 month moving average.
Volume: Higher, but still well below the steady 20 period moving average
Moving Averages: Close>12>36>72>120 period moving averages
% Bollinger Band: Upper quartile
Bollinger Band Width: Ever so gradually broadening from near historical lows (yellow dotted line)
MACD: Bullish at a positive value, histogram ticked higher for the 7th straight month
ADX: Bearish, trading
RSI: Mid range
Candle: Doji (indecision) with a bounce off the 20 week moving average
Volume: Similar to prior weeks, at the declining 20 period moving average
Moving Averages: Close>10>50>100>200 period moving averages
% Bollinger Band: Middle
Bollinger Band Width: Narrowing
MACD: Bearish at a positive value, histogram ticked lower for 8th straight week
ADX: Bearish, trending
RSI: Mid range
Candle: Inside day, indecision as closed well off highs and lows
Volume: Near the steady 20 period moving average
Moving Averages: 50>Close>20>100>200 period moving averages
% Bollinger Band: Middle
Bollinger Band Width: Ever so gradually narrowing
MACD: Bullish at a negative value, histogram ticked lower 2nd straight day
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.
These patterns usually end up occurring about 3/4 of the way through the triangle. That would take us to Monday 10/3. Interestingly this lines up with end of quarter/new quarter moves.
Thursday I wrote “Today we ended up on the lower trendline. I would expect to near the upper trendline tomorrow.”
This is exactly what happened. In my view the triangle pattern is now complete and everyone should be very nimble next week!
$VIX had a down day. But lets look deeper. First off there are not really any clues to take from the technicals (divergence wise). However I find it noteworthy and possibly bullish longer term with the MACD near zero and RSI near 50 even after 2 bad $VIX days. Looking closely at the last candle of the day, it was quite bullish, which more times than not tips the hand to the next day’s trades.
High-Low was +26 today. The McClellan Oscillator flipped back to positive. So a few stocks are doing quite well.
SPX %above MA
The stochastic indicators have signaled a SELL for 4 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.
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 by a good margin, making a new high for 2016. The technicals continue to look tired with negative divergences in place on ADX DI and RSI.
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.
Above all major moving averages, even pierced the upper Bollinger Band for a time Thursday. However we ended Thursday off the highs and lows, pretty indecisive, on average volume.
Today, we had a positive day, but did not exceed yesterday’s high on even lower volume. If price does make it back to $48.97 seen on 8/22, technicals will continue their negative divergences which began this past summer.
Oil may still make new 2016 lows by the end of the year.
Summary: Bulls vs. Bears
Final Thought: Are we there yet? I think we may about to be. The sideways hourly SPX pattern looks about complete to me, where it should be in percentage of the triangle to apex. This is why I have been centering my target for a larger move to begin Monday 10/3, but gave myself the 1 day cushion on each side. Nevertheless, it will be wise to be cautious and nimble trading next week.
Things may continue to firm up launching into a new leg higher. BUT, I find it hard to reconcile with the huge dip in my Technicals Model in mid September (below Brexit levels) with no large decline in the market. Just have to be ready once the trend makes itself known. I’ll be watching each day!
- Number of New Lows near zero
- Above the 2131 pivot level
- SPX Daily above 20, 100 and 200 dma
- Oil higher, but technicals not too excited
- McClellan Oscillator flipped to positive
- No $VIX BUY signal, beware of the surge in the last trading hour though
Interesting things for the Bears…
- Cumulative Technical Model barely higher, but preformed a bit worse than the market (bearish)
- Long term trend of the number of New Highs decreasing
- The Performance of the Technical Model:SPX ratio has been negative for 46 straight trading days!
- Daily scores from the Technical Model negatively diverging through the months of July-September
- New Highs nearing zero
- SELL signals on 4 of 5 of Number of stocks above their 20/50 dma
- SPX 20 dma below the 50 dma for the past 12 trading days
- SPX Daily below the 50 dma
- HYG:IEF trading sideways with minor new high, with tired technicals
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 9 weeks
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 8 weeks
- Weekly MACD is a SELL
- Monthly technicals very favorable for a stalling market
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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