Tuesday November 1st, 2016

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Stormchaser80, L.L.C.
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=========SIGNALS=========
401K/Long Positions: No
Short Positions: Yes
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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.

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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!

First Thoughts…

I apologize for my absence. Subscribers were e-mailed about major changes at one of my data providers necessitated re-working of my scripts. I chose to spend my time doing that, rather than post without the model and having a longer down-time. Thank you for your patience.

Today I will review the Monthly chart and get everyone back on the same page as far as trading. I still am holding my shorts.

 

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: 4.2 [6.5 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.

MOMO

Technicals Model (proprietary)

The first chart below is the cumulative Technicals Model dating back to 2006. The last negative day was Today (now 22 days in a row)! This rivals the worst of 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 currently). 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 67th trading day in the row that the ratio of the two is below zero! The ratio is giving a SHORT signal since its below -200%!

index_cumulative_all

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 from early September.

Comparing the slope of the Technicals Model vs. SPX today, the Model is very slightly more bearish. These 1-day signals are not very reliable, but better than 50-50. 

index_daily_1year

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.

SPX Monthly

m

ADX: Bearish, trading

RSI: Mid range

CandleIndecision with a bearish tone, but an inside month

Volume:  Highest since May, nearing the steady 20 period moving average

Moving Averages: Close>12>36>72>120 period moving averages

% Bollinger Band: Middle of the band

Bollinger Band Width: Very tight but steady

MACD: Bullish at a positive value, histogram ticked lower for the first time since Feb 2016

SPX Daily

d

ADX: Bearish, trending

RSI: Nearing oversold

CandleIndecision, well off the lows and highs, but a bearish candle overall

Volume: Trending lower, below the steady 20 period moving average

Moving Averages: 50>100>20>Close>200 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 5th day in a row

SPX Hourly

h

Below the 2116 pivot.

No positive divergences are seen on the  ADX DI, RSI, MACD and MACD histogram at today’s lows. A lower low is expected.

VIX Hourly

vix

$VIX has exploded higher since the MACD BUY signal occurred on 10/24.

With today’s new high, only saw negative divergence on ADX +DI. A new high in $VIX is expected. Today’s close was bearish for $VIX, which also closed back in the Bollinger band.

 

SPX Breadth

breadth

High-Low was -3 today. The McClellan Oscillator was negative for the 21st day in a row. With the summation index below zero, shorts will be quite fruitful when short term signals align.

SPX %above MA

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.

Notice how 4 of these indicators are showing positive divergences vs. $SPX lower lows. This is bullish for $SPX in the medium range.

TLT:TIP Daily

tlt_tip

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 Daily

hyg_ief

HYG:IEF ratio significantly lower today, closing below the Bollinger band on heavy volume. This is very bearish, as no positive divergences have been put in yet.

HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.

Oil Daily

oil

Oil closed lower after trying to rebound today. It closed below the bottom of the Bollinger Band, near the 100 dma, on good volume and without any positive divergences. This remains bearish for oil.

A collapse is still possible based on negative divergences since summer in the technical indicators for the end of 2016.

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Summary: Bulls vs. Bears

Final ThoughtWe are in the midst of a selloff, with our model still indicating a SHORT signal. The monthly chart continues to imply a topping pattern. In the short term, divergences have yet to be put in, supporting lower lows on the SPX. Oil looks especially bleak. However its not all doom and gloom as positive divergences in breadth and % above MA along with the proprietary Technicals Model suggest a bounce is setting up for the medium range.

Bullish

  • SPX Daily above 200 dma
  • Positive Divergence vs. September Low on McClellan Oscillator
  • Positive Divergence vs. September Low on several Percent Above Moving Averages
  • Positive Divergence vs. September Low on Technicals Model

Bearish

  • Cumulative Technicals Model has not made a new high in 2016
  • Technical Model (cumulative) below its 200 dma first time since Spring 2016
  • Technical Model negative for 15th day in a row, last occurred in January 2016
  • SELL signals on 5 of 5 of Number of stocks above their 20/50 dma
  • Below the 2116 pivot level
  • $VIX in uptrend, but late stages
  • HYG:IEF very bearish
  • Oil  is bearish
  • 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 61 straight trading days!
  • Daily scores from the Technical Model negatively diverging through the months of July-September
  • New Highs near zero
  • SPX 20 dma below the 50 dma for the past 33 trading days and below the 100 dma for the past 3 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 13 weeks
  • Weekly close below the 20 week ma for the 3rd time since Brexit
  • Lower high on SPX Weekly MACD Histogram, histogram weaker last 12 weeks
  • Weekly MACD is a SELL
  • Monthly technicals very favorable for a stalling market

Levels to watch

  • 2116 pivot level
  • 2085 is the next pivot level lower

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Feb-March 2016 Posts: https://stormchaser80.wordpress.com/ 

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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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