Tuesday, June 25, 2013

The Pesky Advance/Decline line...6.25.13

I've mentioned the NYAD (NYSE advance/decline line) several times.  It's a true real time (or longer term) indicator of the underlying market pulse.
Here's the view on 30 minute bars looking back 12 days.
Keep in mind that a reading of 1.0 means equal advancing versus declining issues.
The days highlighted with the yellow arrows started with basically no advancing issues (.05) and showed no improvement throughout the day.
Each of these days was followed by an optimistic open which quickly faded down...in some cases substantially.
Before we can expect a meaningful (and more risk tolerant) investment environment for our models we must see a return to a more normal and less volatile action on the NYAD throughout the day.  A week ago we forecast a significant increase and volatility and based on the behavior of the VIX (white overlay line) we can see that this has occurred and the VIX now stands (as of this post) at 19.15, down 7.5% for the day, but still well above the 12 values that accompanied the previous month's slow rise and churn.

Is the VIX due for a pullback? If so it will probably come in little steps and not without a few whipsaws.
Betting against the VIX is a risky bet for now.

The global sell off in bonds has been dramatic with treasuries and munis taking substantial hits.
Thank the FED for getting that ball rolling but the China slow down and other macro economic factors have created a kind of pig pile effect and its not clear where the first support line is...and more importantly...whether it will hold.

Many issues are now right back where they were on Jan 1st so this may be the foundation for another run up, BUT...cash is still the P6 signal. Yes, all the X sector ETFs are green as of 90 minutes in today but we've seen the "trap door" spring before so caution is advised.