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401K/Long Positions: No
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 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.
This is an unrestricted post as its the last of this week (I’ll continue new posts next week after the holiday). I’ll also have a Monthly SPX analysis as we roll into my favorite month of the year!
Please note the changes at the top of the post…
If you like what you see, please register for a free login at the bottom of this post so you can view daily posts
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]
Today’s S&P500 volatility is scored at: 2.2
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 during the past 6 trading days, the last time this occurred was in mid June. 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 25th 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. We also made a new lower low on the technicals daily readings last week, 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: Upper quartile
Candle: Doji, indecision
Volume: Very low, well below the slackening 20 period moving average
Moving Averages: Close>12>36>72>120 period moving averages
% Bollinger Band: Upper quartile
Bollinger Band Width: The narrowest since late 2006 (yellow dotted line)
MACD: Bullish at a positive value, histogram ticked higher
ADX: Bearish, trading range
RSI: Mid range
Candle: Slightly bearish, but bulls came in
Volume: Higher, at the leveling 20 period moving average
Moving Averages: 20>Close>50>100>200 period moving averages
% Bollinger Band: Bottom of the band
Bollinger Band Width: The narrowest since Sept 2014 (yellow dotted line)
MACD: Bearish at a positive value, histogram ticked lower
Above the 2131 pivot.
Yesterday I said “No positive divergences seen with today’s move, expecting more weakness ahead.” This was correct.
I have yet to see positive divergences between today’s low and the low on 8/26. Therefore a new relative low is expected before any meaningful bounce.
No negative divergences noted at today’s high, though the final hour was quite bearish for $VIX. We are in a new MACD uptrend (green lines), with RSI at or above 50. $VIX should make a higher high tomorrow, before any significant pull back.
New Highs and McClellan Oscillator have been negatively diverging with the market (blue arrows) since early July and March respectively. New Highs dropped significantly from early July. What should be alarming to Bulls is the negative McClellan Oscillator for 23rd day in a row, although off the early August lows.
SPX %above MA
Percent of Stocks above their 20/50 dma has fallen to near 50% for 4 of the five indicators, after negatively diverging with the SPX higher high (in blue) earlier in August. The stochastic indicators have signaled a SELL for all 5 indicators! Huge negative divergence seen on the Full Stochastics (red arrows) since March.
NOTE, that the market can stay in the BUY or SELL range (green or red) for quite some time.
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 a little lower today, despite the larger oil loss. Negative divergences since March support lower values ahead. Either the HYG:IEF relative bullishness is lying or Oil is right now.
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 2 months ago. Nothing favors new 2016 highs for oil here, not seasonality, nor technicals.
Oil traded significantly lower today, now below most major moving averages.
Oil may still make new 2016 lows by the end of the year.
Summary: Bulls vs. Bears
If we learned anything in the past few months, nothing goes in a straight line. We need to continue to look at both the Bullish and Bearish arguments.
- Number of New Lows near zero
- SPX Daily above all major moving averages except the 20 day
- HYG:IEF only had a small low in spite of Oil losing significant ground today
Interesting things for the Bears…
- No positive divergences on the hourly SPX chart…yet
- $VIX in uptrend
- Cumulative Technical Model lower last 6 trading days
- The Performance of the Technical Model:SPX ratio has been negative for 25 straight 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 negative for the 23rd straight trading day
- Number of stocks above their 20/50 dma negatively diverging again from recent SPX peaks, with sell signals on all 5 of these indicators!
- After 3 weeks in a row closing above Top Weekly Bollinger Band, it failed to do so for the past 4 weeks
- Lower high on SPX Weekly MACD Histogram, histogram weaker last 3 weeks
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).