Friday, December 21, 2012

NYAD and VTV View...12.21.12

I've talked about the NYAD (NYSE advance/decline line) in previous posts.  In my opinion it's the best view of true market momentum...devoid of the high frequency trading bias the typically infects intra day statistical oscillators. This is a 12 day lookback on 30 minute bars.  That's us today at .36 as of 90 minutes in.  The yellow line is an overlay of the VIX so you can see how volatility and the NYAD work inversely to one another (normally).  We also know that true selling doesn't end until the NYAD reaches into the low teens or single digits.  On the other hand, this is a strong seasonal period with low volume.  That's picked up today because its monthly option expiration and traders are looking to reset or rollover positions....but premiums are so low these days that its hard to find good situations to make some premium decay dollars on, say, covered call positions without focusing on high beta (think high risk) stocks.. 

The move to restrict our short term positions to IWM in the T2 model (noted yesterday) played out well today as IWM is only down .9%, while SPy is down 1.2 and the Qs are down a whopping 1.9%.  We took a hit, yes, but so far its a modest one and we avoided compounding the error by being out of XLE and XLU, both also in the red today.

The VTV model was suggesting that today's slide had a high probability. The TrendX was dead on the zero line for the IWM/TLT pair...indicating a bad time to take on new IWM Longs, but more importantly, the VTV chart below the metrics panel had P3 and P6 divergent....a clear signal that momentum between the IWM/TLT pair had reached a "breaking point".  Although all the other chart signals were in a confirming mode, this one was not and should have provided a caution to stand back from any new trades and/or provided a signal to go to cash until the P3 and P6 were once again in sync.