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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. We are not quite there, last occurring this past June, before that late April into mid May.
To summarize, the 401K/Long Positions Signal is a NO right now because my signal for long positions is currently a SELL. And My Short Positions signal is a NO because the Technicals Model to SPX performance has yet to reach -200%, but its close. In conclusion, my methods are suggesting its best to have no position in the market, yet.
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.
For the first time since Brexit, I have triggered a confirmed signal to short the market. I plan to see how futures look going into Monday morning, then choosing if/when to buy my SPXL or UPRO puts.
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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]
EMA(3) S&P500 volatility is scored at: 4.0 [10.2 single day]
To give you a reference, the last period greater than 10 was 6/24/2016 to 7/12/2016.
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 last yesterday, and now has done so an impressive 9 of the last 12 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 31st 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 this current negative divergence is very steep, but we have recently leveled off. We also made a new lower low on the technicals daily readings 2 weeks ago, lower than early August, despite the SPX being at a higher level (negative divergence, bearish).
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 range
RSI: Mid range
Volume: Low, below the slackening 20 period moving average
Moving Averages: Close>20>50>100>200 period moving averages
% Bollinger Band: Middle of the band
Bollinger Band Width: Quite narrow
MACD: Bearish at a positive value, histogram ticked lower for 5th straight week
ADX: Bearish, trading range
RSI: Near oversold
Candle: Very bearish
Volume: Higher, slightly above the increasing 20 period moving average
Moving Averages: 20>50>Close>100>200 period moving averages
% Bollinger Band: Well below the bottom of the band
Bollinger Band Width: Expanding from he narrowest since Sept 2014 (yellow dotted line)
MACD: Bearish at a negative value, histogram ticked lower
Below the 2131 pivot.
Huge dump on Friday, yet to see any positive divergences from ADX, RSI, MACD
What I said Thursday “$VIX strength continues to signify something potentially brewing the the markets. A new green line positive MACD cross occurred yesterday with bullish $VIX action today. With both the RSI and MACD histogram closing at highs, this bullish $VIX move has room to run. Add in that the final hour of trading was a solid bullish candle, also hints at further market deterioration ahead.”
Today I still see no negative divergences on RSI/MACD/ADX and everything close at session highs. The final hour of trading was solid bullish candle, also hints at further market deterioration ahead.
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 29th day in a row, although off the early August lows.
New highs were near zero, plus its noteworthy that the McClellan made lower lows. Yesterday I said it was noteworthy that the McClellan significantly deteriorated.
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.
We are in the green oversold range for 1 of the 5 indicators. NOTE, that the market can stay in the BUY or SELL range (green or red) for quite some time. Very bearish development on Friday with values dropping like a rock.
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 weakening Friday on heavy volume. We all know about the deteriorating technicals in the long term.
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, 3 months ago. Nothing favors new 2016 highs for oil here, not seasonality, nor technicals.
Thursday I said “Oil made some gains today and is now above resistance of the 20 and 100 dma. However looking at the technicals I can compare Oil to a 100 year old finishing a marathon. Not much left, but we have to applaud the effort!”
And then huge losses Friday, now back below the 20 and 100 dma.
Oil may still make new 2016 lows by the end of the year.
Summary: Bulls vs. Bears
- Number of New Lows near zero
Interesting things for the Bears…
- Hourly $VIX in a confirmed uptrend
- Cumulative Technical Model lower 9 of past 12 trading days
- The Performance of the Technical Model:SPX ratio has been negative for 31 straight trading days!
- Daily scores from the Technical Model negatively diverging through the months of July and August
- Number of new highs nearing zero
- McClellan Oscillator closed much lower, negative for the 29th straight trading day
- Number of stocks above their 20/50 dma dumped at highest pace in quite some time, 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 6 weeks
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 5 weeks
- HYG:IEF still near recent highs selling off
- SPX Daily at 100 dma, and well below the 20/50 dma
- Below the 2131 pivot level
Levels to watch…
- 2131 pivot level
- A break below 2112 SHOULD stick the fork in this entire uptrend from February
- Until then, we watch 1 day at a time. A break lower only to recover to new high will give us the negative divergences yearned for on the SPX daily chart
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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