Thursday, February 27, 2014

Bullish Surge......2.27.14

It was a strong day out of the gate and continued in that mode for the entire session.  The SPY TrendX is again bouncing against overhead resistance after a couple of sideways days and SPY is still poised to make a way or the other. 

XIV did not participate in the rally early going both the VIX and XIV were in the red.

The emerging markets really caught fire today (EEM and SCHE) and are worth keeping an eye on.
SCHH (REITS) are also worth a look in light of the positive real estate reports today.

Wednesday, February 26, 2014

Overhead Resistance Holds...2.26.14

Forays into new index highs were met with selling pressure despite a few pockets of strength in individual stocks.  The VIX reared up 5% pulling solidly into the 14's....not bullish.

The best hope for the bulls right now is the fast approaching end of the month...typically bullish.

We continue to see multiple double tops and signs of weakness in the energy sector as the financials continue to display no mojo. 

Tuesday, February 25, 2014

New M3 Ghost setup.....2.25.14

Registered M3 users should have received the new M3 Ghost version today via email. 
Please email me if you haven't received the file.

The market continued the closing weakness pattern that started yesterday.  Earnings season has kicked off and this may be the catalyst that drives the markets into the next trend.  We shall see.

The M3 Ghost provides a fourth input slot on the DATA tab.  It was placed there with the intention of filling it with SHY...the I shares 1-3 year Treasuries ETF...essentially the equivalent of CASH.
The slot does not have to be filled, however the Ghost gives you the option of doing so.  The slot can be deleted or filled as desired by the user as long as its an ETF or NYSE/NAZ stock.
Updating the MACROS with the ghost slot filled will produce modified results in virtually all the RESULTS tab performance metrics and rankings.  I've circled the SHY fills for the example shown just have to pay attention that you're looking at SHY and not SPY.

Here are the results with the ghost turned on:
And the results with the ghost turned off:
Keep in mind that you also need to follow the SHORT TERM ALERT and equity curve P6 STOP but using the ghost can clarify the risk picture in many instances.

What about using the ghost with the AUTO STOP?
Here we are without the ghost and with the AUTO STOP:
And with the ghost and with the AUTO STOP:
Running a daily update of your focus M3 setup both with and without the ghost feature can help clarify the current risk profile by emphasizing the relative strength of cash (SHY) versus the momentum of the beta exposed components of th4 model.

Monday, February 24, 2014

SPY at New High...2.24.14

A solid rebound from Fridays OPEX has put SPY at new highs. 

With the market at these lofty levels its actually become harder to find pockets of opportunity to exploit although the VIX is till in the low 14s....meaning a further drop down to "normalized" 12 levels should produce a potential gain to SPY of approx. 15%...not impossible....the market is always full of surprises....but its unclear what would push the markets through the current overhead resistance levels.

The best odds now favor the DOW over either the Qs or SPY and if we do see a new bull trend one of the most likely big gainers may well be in the financial sector...XLF...which has so far failed to show much mojo and is due for a bump.

One of the sectors that has done very well recently is energy and here's a look at how my sister has played the sectors using M3.

First, we start with a simple one component run of M3 using SPY as a benchmark to establish a baseline.
We just save this file under a separate file name so it can be referred to relative to other others that do not include SPY in the mix.
Then we input the energy sector proxies using XLE, USO and UNG.  Our expectation is that the horrible weather the country has endured for the past few months will have goosed demand (and prices) relative to gains in SPY.
In this case we've used a top one sort without the AUTO STOP turned on.  There's a reason for this approach as we will see below.  Energy as a sector has clearly outperformed SPY on the 6 month basis but where it really gets interesting is on the more short term metrics:
Another way to play our expectations for energy strength is simply to go all in with a top 3 sort and just use the SHORT TERM ALERT chart and the equity chart's P6 to serve as a money management stop. 
This is the approach my sister has used since the first of the year and the results have been a surprisingly liner equity curve.

Saturday, February 22, 2014

X Sector and Gamma Model Updates...2.22.14

It's been a while since we looked at the 11 ETF models so this seemed like a good time to review results so far for 2014.

Here's how the X sector and Gamma models have fared....

One thing that jumps out is the dominance of XLU (utilities) in both models.  This situation is especially surprising in the Gamma model which has SSO (SPY ultra bull) as part of the component mix. Also note the on going low ranking of XLF (financials)...bearish.

Recall that SHY (NOT BE TO CONFUSED WITH SPY)  is the I Shares 1-3 Treasuries ETF, which is basically the same as cash.

First, the SPDR X Sector model:

And now Gamma, which takes in a wider view of the market spectrum and incurs higher beta.

Thursday, February 20, 2014

Momentum Reverses....Again...2.20.14

It's down, it's's looking for the next trend.  Early morning weakness looked like this was going to be a follow through day but hen buying kicked in and remained evident for the rest of the day. 

Options expiration tomorrow may have had something to do with today's pop as option traders try to push momentum in their direction but the sluggish rebound this morning was a sign that the bulls are still in charge. 

On the other hand SPY overhead resistance is still in effect and the number of double tops on daily bars is huge, coupled with most of the indices now flashing RSI3 readings in the 90s makes this a frothy time to initiate new longs.

Wednesday, February 19, 2014


It looked like the markets were going to hold it in the green after early morning weakness but selling swept across the boards in the afternoon session and the SPY TrendX >>>>see right side panel...has now displayed a reversal off overhead resistance, and the intraday TrendX showed the greatest downslope off the zero line we have seen in several weeks.

Needless to say, M3 is on CASH.

Tuesday, February 18, 2014

Momentum Stalls... 2.18.14

Essentially a flat line day with a few major stocks taking big hits...possibly an early warning of an impending reversal.  Financials have been unable to match gains in other sectors in the recent rally and that not good for the bulls when tech and financials fail to keep pace.
The VIX is once agian on the rise (along with XIV)_although on a daily chart this is not a technically reliable point of trend reversal.

Monday, February 17, 2014

Market Analysis with M3 ....2.17.14

The markets have had a strong run and are now at TrendX overhead resistance levels. >>>>>>>>> (see TrendX chart in right side panel).
M3 has managed to book some nice gains but we are getting an early ALERT stop cross and a collapse of the SPY/SSO and SPY/XIV pairs % change in volatility that is approaching the zero line....which has typically resulted in a trend reversal at the cross line.
By the way, for those interested in more details on the VIX and XIV here's an excellent article:

Since many have asked about other possible setups using M3 here's a few ideas that may help to detect underlying relative strength in the major indices and to take advantage of leveraged ETFs.

First, a simple model which looks at relative strength in the S&P versus the DOW versus the Nasdaq.
We can turn the AUTO STOP on or off to further define both historical and current risk.
Various iterations of this thinking can be applied to M3 to boost potential short term gains (keeping in mind that the risk exposure also increases so watching the STOPS is, as always, important.)

Finally, we can change the whole focus of our attention using an M3 beta range approach and applying it to something other than this case QQQ which, based on the SPY/QQQ/DIA setup above has out performed SPY.
What's interesting here is that there are days when QQQ momentum was actually stronger than XIV, further revealing the QQQs tremendous recent relative strength.

Thursday, February 13, 2014

VIX / XIV Congestion...2.13.14

XIV and VIX both headed down in early going...technically impossible, and then as the afternoon session wore on XIV finally crept to the green.

This situation leaves M3 still bullish with XIV in the top slot.

Below is a daily chart of VIX with an XIV overlay showing that, in fact, there are times when these hypothetically inverse issues do move together in the same direction (VIX is blue, XIV is orange).  Part of that phenomenon may be due to the fact that XIV and XIV are ETNs, not ETFs with a fixed asset base, and as such are composed of various SPY related derivatives...leaving us with VIX, a statistical index of market volatility versus XIV, composed of inversely based futures, options and other esoteric instruments.

No wonder the relationship between these 2 issues behaves oddly at times.
Note early December as a prime example............

Tenuous Stability....2.12.14

Basically a flat line day although volatility did decline ...positive for the bulls.
XIV closed in M3's top ranking...marking day 4 of its VESTED signal.

Following yesterday's pronouncements by the new FED chair that were generally regarded as bullish to benign and no other new macro economic developments to drive the markets we were left with a market in limbo today, the DOW still hovering at 16,000 and no clear idea of the catalyst that might propel the next move.

Tuesday, February 11, 2014

Now REALLY Overbought...Oil and Emereging Markets POP...2.11.14

DOW up almost 200 points today, kissing 16,000 again.
XLE (Oil) and EEM/SCHE hit their stride today, erasing the lag seen over the past 3 days.

Referring to the SPY Trendx in the right side panel it looks like we still have breathing room to the upside but the RSI3 is riding in the high 80's, historically a high probability retracement level.  Some of today's action was probably due to short covering as evidenced by the luke warm volume and the across the board fade at the close.

M3, ever the optimist, still has XIV in the lead following today +6% drop in the VIX.

Monday, February 10, 2014

Now Overbought...2.10.14

It was a yin-yang day with both XIV and VIX running in the green for the first 90 minutes.  Its usually a bearish sign when these divergent volatility indices are both positive and we did see some companion selling before the VIX gained the edge. 

Early weakness was followed by afternoon buying but ultimately the majors were left flat although QQQ continues to outpace SPY (should be bullish).

Technically (at day 3 of the "rally") we are in an overbought state, which seems to be confired by the M3 SPY Short Term Alert.

Market watchers are poised to  hear from the new FED chairman tomorrow although no new policy changes are expected.

Saturday, February 8, 2014

M3 Update...2.8.14

Since a few readers have asked, here's a look at the situation with the SPY M3 with the AUTO STOP feature turned on. 
Bottom line...the model is bullish with the ideal XIV, SSO, SPY  ranking now flashing. 
With the VIX dropping 14% on Friday we're actually due for a little pullback but that may simply be an intraday hit with an ongoing rise in the end of day highs.  From a strictly historical perspective. retracement runs like this tend to run 3 days, then pause or pullback before continuing their run.

And, what is encouraging for the bulls is the positive position of the pairs % change charts... but have just crossed the zero line and are now trending up.