Monday, July 29, 2013

TrendX Negative = Cash...7.29.13

Sometimes the simplest indicators are the most reliable.  Case in point...the TrendX on SPY...a simple pivot based moving average (H+L+C/3) that has been uncanny over the last year in it ability to identify turning points in the trend.
Over on the default T2  model the P6 has us in cash and, as with the X sector model, the likely short term move is down through the RSQ equity line.
The top 2 sort of the default model has not performed as well as the SPY in most of the short term metrics...which can be partially traced to the fact that 5 of the 11 ETFs have downslope RSQ lines.   However,   keep in mind that the default model is a market neutral portfolio so we should not be surprised at its sub par returns.
The best use of the T2 default is examining where bonds are relative to equities relative to SPY.
With SPY in the midpoint #6 slot we are seeing a non-trending market which is slightly skewed to the downside.
The somewhat odd behavior of XLE (energy), jumping back and forth between slots 4 and ,7 further emphasizes the stagnant nature of the markets.
Can we go higher?
The answer is a qualified yes but what we are seeing now is a market of individual stocks making substantial gains of losses, mostly due to earnings reports and projections. 
For longer term investors seeking to avoid this volatility and uncertainty the current risk management signal continues to argue for CASH>
There will be no new posts until the weekend update. I'm in the process of moving to a new home and a new office in La Quinta, California and the rigors of the move and the uncertainty of when my IT infrastructure will be returned to reliability prompt this disruption of normal postings.  I will be back.

Sunday, July 28, 2013

X Sectors in Cash...7.28.13

We're still seeing a pullback in the X sector ETFs and despite Friday's open to close rally the charts don't look particularly bullish at this point.
XLK is stuck in slot 11 while XLV and XLF jockey for the top 2 slots.

Given the position of the P6 and the RSQ the next move we would typically expect is a cross, which means continued weakness in the equities markets.

HOWEVER, we are approaching the first of the month, a date that has shown bullish behavior over 70 % of the time for the past 2 years so that performance metric needs to be considered.
One possible scenario....a continued fade down into Tuesday and then a rally on Wednesday and Thursday.
This pattern would support the 'Turnaround Tuesday" studies that suggest Tuesday is the most likely day of the week for short term trend reversals.

Note how volatility in both SPy and the top 2 sort have compressed over the past month.
The implication is that we are due for a big move...which direction remains to be seen.

Click once on chart to clarify.

Wednesday, July 24, 2013

More on the QQQ (XLK) / XLF Skew...7.24.13

Here's a link to more details on the "soggy bottom" setup I mentioned previously .
The bzbtrader post relates relates to 2 minute bars but the pattern can be seen in virtually any time frame, including daily bars.

For a closer look at the relationship between QQQ (or XLK) and XLF I have posted this current overlay chart based on 130 minute bars...or 3 bars per day.    XLF is shown as the white line.  The 2 cyan colored lines are 8 bar moving averages of the high and the low prices for QQQ.
For shorter term traders this is an easy way to see exactly how momentum plays out on a daily basis...the opening 2 hours, midday and the closing 2 hours.  We can also see if early momentum carried through or if there was a reversal of trend.

In contrast to last week's divergence we now note that there is currently a converging correlation between QQQ and XLF... a correlation that has improved substantially in the past few days and will likely show more improvement at today's close based on the almost 6 % pop in Apple after an upbeat earning report.

Tuesday, July 23, 2013

Commodity Update...7.23.13

Well its kind of an update although USO is still firmly in the #1 slot.
The item of interest is the migration of GLD to the # 2 slot.

What we are not seeing is a reversal in Commodity model P6 slope, as in the X sector model.

We should also mention that the maximum total drawdown over 2 years was actually higher in the T2 model than in the SPY, although you will also recall that the Commodity model was soundly outperforming the SPY for most of the Spring before the P6 slope went negative around may 1st and the model went to cash.
For now the commodity model still looks encouragingly bullish although 8 of the component charts are exhibiting RSQs with negative slope so caution is still warranted.
Click once on chart to clarify.

Monday, July 22, 2013

XLF / XLK Skew Widens..7.22.13

On the heels of the previous XLK post today's market action pushed the XLF / XLK skew to the limits, now posting XLF as #1 and XLK as #11.  This is a very abnormal divergence and although today's modest recovery in MSFT may help to ease the pain the fact remains that SPY is stuck in the #5-7 rankings...... typically a sign of market stagnation or impending reversal.

On the SPY TrendX in the right side panel we note that SPY has reached overhead resistance and the most likely next move would be DOWN.

If you haven't noticed, both gold and silver are now exhibiting soggy bottom patterns and, long overdue for a recovery, may be in line for at least a 10-15% run, especially if equities falter.

NOTE THAT THE P6 has now turned down with a top 2 sort.
We mentioned last week that this occurrence would be the sign for increased caution and position downsizing...a risk management perspective that is re-iterated here.
 Click once on chart to clarify.

Saturday, July 20, 2013

XLK Stumbles...What's Next?

It's only been a couple days since we last checked on the X sector model but there is an abnormal divergence forming between XLF (Financials) and XLK (Tech) that was given an extra goose with MSFT's 11% loss on Friday.

Our working premise is that bull markets are led by Financials and Tech, but with XLF in #3 slot and XLK in #9, we're not seeing the type of correlation alignment to foster market encouragement.
The FED chairman has shown that he can move the markets with just a nod of the head or a sideways wink and virtually all volatile and gap days have been the product of FED pronouncements....and their  sometimes obscure interpretations by various market prognosticators.
As of this date we have a truly mixed bag to sort through in search of a risk managed portfolio.

All models are now vested with the RSQ and P6 upslope:
As detailed earlier this week the financials are looking GOOD...these guys know how to make money.
Tech is stumbling and it will be interesting to see the fallout from the MSFT drop next week.
Housing starts have suddenly cooled.  In Southern California a red hot market now acts like someone hit the PAUSE button. Slightly rising interest rates have been cited as the likely culprit but in many markets housing prices have risen 20%-25% in the last year and we may have reached a buying plateau ... for now.

In responce we are keeping a close eye on the P6 and ready to switch to cash if it falters.

Thursday, July 18, 2013

SA Model Shows Slight Edge...7.18.13

Looking at today's clsing prices in the SA (Seeking Alpha) model confirms that the all in original portfolio can be improved by using a top 2 sort approach.
The 1 and 2 year returns can actually be improved significantly by using a top 1 sort although it is recommended that in order to accomplish these returns a daily rotational strategy be followed in lieu of our default weekly trading model.  This more frequent trading model may incur substantially higher commission costs than weekly trading and should be carefully considered before undertaking.
On both the 2 year and 4 month charts the SA top 2 sort model is bullish. 
Watch the P6 slope.

On the SPY TrendX in the right panel we are once again at an overhead resistance level and a breakthrough of that level would be significant.

Meanwhile, as predicted by the T2 indicators, XLF is running hot based on stellar earnings reports from the big 4, C, JPM, WFC and GS. 
Click once on chart to clarify.

Wednesday, July 17, 2013

X Sectors Likes XLU..7.17.13

Networking problems and unexpected outages from my service provider prevented last night's post.
We're still in the midst of earnings season so volatility could spike as we approach monthly options expiration .....and the news of surprisingly poor housing starts put a damper on the market's recent burn rate.

We're seeing some selective pullbacks but, sticking with our previous premise, XLF and XLK are really the ETFs to keep an eye on.

The fact that the XLU has now become the top momentum X sector ETF is interesting and the P6 is clearly in a bull mode, BUT.....the RSQ is still downslope so we need to temper our enthusiasm a bit pending confirmation that this is a real long term opportunity.

The model is in a vested mode based on the top 2 sort, it's just prudent to keep a close eye on the momentum dynamics when the #1 slot chart looks like XLU.
XLY in the #2 slot (previously in #1) is exhibiting a little pullback, but for now the RSQ is upslope and the P6 is bullish.
Click once on chart to clarify.

Monday, July 15, 2013

XLF Model Update..7.15.17

Here's an update on the XLF component model and, surprisingl,y a top 6 sort actually is underperforming the XLF basket of all 11 ETFs. 
One conclusion to be drawn from these metrics is that the whole ETF is in an accumulation mode, although apparently on a rotating basis. 
Based on XLFs recent slot as #4 or #5 we can see that there is a risk adjusted advantage to using a somewhat wider net (top 6) than our typical focus on top 2 models.  Part of this strategy may be traced to the fact that these are stocks, not ETFs, which inherently possess considerably higher volatility than the underlying XLF.
The larger conclusion is that the sector is exhibiting robust momentum, (boosted today by a rosy Citigroup earnings report) and supporting our previous contention that XLF's next move could be significant.
Click once on chart to clarify.

Sunday, July 14, 2013

T6 Delta Neutral Weekly Update..7.14.13

Checking in on the delta neutral weekly version of T6 using a top 1 sort (otherwise known as the Lazy Man approach) shows the relative performance..and dominance.. of SPY's recent run.  Note the position of  P6 and the RSQ...upslope and climbing.  We now have bullish indicators on both the daily and weekly charts, setting up a scenario for another quick leg up...if earnings don't falter.
The file was last updated on July 8th and will be updated after the close on the 15th.  Given SPY's run this past week we can expect the new momentum signals to be even stronger than those shown on these charts.
What can derail this momentum?
Some underlying economic factors are not as bullish as one might expect at first glance and we'll explore a few of those next week.  The bad news..although the average new employee, either full or part time, may have a job, the odds are that the pay scale for that work is significantly less than 5 years ago.  Most recent new jobs have been in the retail and hospitality sectors where unskilled workers dominant the work force.  The good news...corporate profits are up as a result of reduced labor costs, contributing to the markets optimism.
Click once on chart to clarify.

Thursday, July 11, 2013

T6 on a Roll..7.11.13

A new SPY high thanks to encouraging comments from the FED chairman that quantitative easing is alive and well, probably well into 2014. Of course this could change tomorrow but the markets are definitely in a bullish mood.

The T6 bull model is clearly in a vested mode...all the indicators are upsslope.
BUT....the markets have come a long way quickly and strictly from a technical perspectve we're due for a little pullback before the next big run (if that's what coming). 
Net result...I'm expecting a bit of momentum lag as some of the underperforming sectors try and get their traction up to speed with the high flying IWM. 

XLF has been the surprising holdback and the pivot ETF to keep an eye on.  A surge in this issue will likely been the signal that we are in for another leg up.

Wednesday, July 10, 2013

Commodities Bullish Cross

Checking in the the commodities model, which has been lagging the lagging the equity markets for several months, shows that the P3 and P6 are upslope, having risen above the RSQ line.  The big concern is that the RSQ remains downslope, suggesting that the otherwise bullish indicators may be subject to some retracement and a possible return to the RSQ line.

The view here is of the 3 month chart.  On the longer term 2 year chart (not shown) it can be seen that the commodity model is still lagging the SPY benchmark, albeit overdue for a bullish run back up to the RSQ.

It's often helpful to compare the shorter term and longer term charts to get a better perspective on the possibilities.
Click once on chart to clarify.

Tuesday, July 9, 2013

Retail on a Run...7.9.13

The bullish mood continues with the retail ETFs (again) leading the X sector pack.
All the technicals are also running bullish at this point and with the situation in Egypt and Syria discounted by the financial community, only some stunningly bad earnings reports by one of the majors could derail the current run.

Tech (XLK) is a surprisingly laggard, but as in the past, it's mostly a matter of degree, and tghe differential between the top 5 slots is marginal at best.

On the short term performance metrics the vested model is staying slightly ahead of SPY.
XLU is the only X sector component with a downslope RSQ, indicating there is still some backfilling of price required before we can declare an investable bottom.
Click once on chart to clarify.

Monday, July 8, 2013

Upbeat mode continues..7.8.13

An hour before the close and the bullish mood is evident, accompanied by the usual low volume.  Bonds are staging a little comeback after a record collapse Friday and on the X sector front XLU, the utilities are (finally) showing some potential.
For now the retail issues XLY and XRT are the momentum frontrunners, running neck and neck

The NYAD had been in a downslope since the opening but has flattened out since the afternoon session began.
The VIX is back under 15 for the first time since June 1st and is now sitting on a support ledge.

Note the TrendX position of the SPY in the right sidebar.  This is a bullish pattern with room to run unless some unexpected news derails the momentum.

It's earnings season again with Alcoa (AA) reporting after the bell.  AA is the usual first reporting major and typically acts like the canary in the mineshaft.  A good report will goose the markets higher...a bad report will not be welcome.
Click once on chart to clarify.

Saturday, July 6, 2013

T6 Improves Outlook..7.6.13

The T6 bullish model is showing improved vesting potemtial based on a now upslope equity line (blue) and the P6 (red).
Keep in mind that the top chart with the grey background reflects the action of an all in (top 6 sort), while the lower black background chart reflects a top 2 sort.

XLU continues to be the laggard of the bunch while IWM and XLF are leading the pack.
If Apple had more positive momentum we might expect QQQ to move to the head of the momentum rankings, which would then create the ideal scenario for another leg up in the SPY which is typically characterized by QQQ and XLF in the top rankings.
Meanwhile, a favorable jobs report on Friday (+195,000) provided a catalyst for a solid run up (on the usual low volume post-holiday).

Click once on chart to clarify.

Wednesday, July 3, 2013

T11 Favors IWM...7.3.13

Favorable jobs numbers coupled with dimmer economic prospects and  mideast instability have so far resolved to a bullish mode 3 hours into today's shortened session. 
The advance/decline line is moving up nicely after a dismal opening at .20 and early red numbers have now largely turned green.  Low volume and a bullish push are typical characteristics of pre-holiday sessions  but the real action will likely come Friday.

Financials are under some pressure based on forecasts that the recent bond selloff will produce bottom line problems with the next earnings reports.  The markets are always looking forward about 3 or 4 months and this is an example of such bet hedging.

This is the real time veiw as of 3 hours in today and its easy to see how IWM (Russell 2000) is now in top slot. Nothing else comes close on the 5 and 10 day metrics.  Of course, if we look back to the 30 and 90 day metrics we see the other side of the picture...significant drawdown relative to the other model components.  Just another argument for paying close attention to the P6 and RSQ money management stops.
Click once on chart to clarify.............

Tuesday, July 2, 2013

Commodities Continue Decline...7.2.13

You would think that with a recent rally in equities and the push back above DOW 15000 that commodities would be making a parallel bullish move.  That turns out not to be the case.

Although we had suggested in a post some 2 weeks ago that commodities would make a similar recovery if equities popped, there is no indication that is happening or is likely to happen in the near future.
The best looking charts of the bunch are USO and XLE, which happen to be the only charts with upslope RSQ lines.

It goes without saying that CASH is the only strategy to play with this model for the present time since if there is another leg down the odds of commodities rising only dims further.
Sometimes it helps our bottom line by analazing not what to trade, but what not to trade as well.
Click once on chart to clarify.

Monday, July 1, 2013

Seeking Alpha Model Update 7.1.13

We're 6 months into the year so this seemed like a good time to review how the Seeking Alpha (SA) stock portfolio was holding up in the midst of recent volatility.
Turns far, so good.

As we have noted previously, once a stock gets rolling it tends to stay rolling in a #1 or 2 slot for a week to 10 days.  That was certainty the case recently with CSCO and GE although the momentum now appears to be shifting to JNJ and MCD.

We're still encountering a few market volatility surges driven my earnings reports and the questionable political stability of the mid East but the markets are firming up half way through the first day of July.

Note that the SA model is in a CASH model per our P6 and RSQ money management guidelines so, as with the other models, we remain in a wait and see posture.