Sunday, August 31, 2014

90 Day View.....8.31.14

Last day of the month so Tuesday "should" be bullish based on past history.
XIV hasn't clicked with the M3 rankings but we're still vested in SSO per the model.
I've attached a 90 view of M3 performance since the charts look somewhat different in this scale than the normal 30 day versions and provides just another way of looking at how the markets in general and M3 in particular are doing.

Feedback from my M3 beta testers has convinced me to add a few more tweaks to the program so access will continue to be free until Sept. 15th while those changes are scheduled to be complete..

Thursday, August 28, 2014

Holding Pattern,,,....8.28.14

Another narrow range day with low volume.  Although it was a red day the losses were modest.
 XIV did suffer a bit of a decline so the STOP that fired yesterday did catch the change of pulse.

Wednesday, August 27, 2014

Calm Prevails, XIV Stopped....8.27.14

Low volume again, as expected.  XIV did falter today, hitting the STOP of 43.48 posted on the M3 site and the rankings algorithm has kicked XIV from the queue so that model is now in cash.
Otherwise, the dashboard is neutral as the markets digest the current overbought conditions.


Tuesday, August 26, 2014

New Highs, BUT.......8.26.14

New highs on SPY but we saw XIV retreat on M3 and per the TrendX in the right side panel the markets are seriously overbought.  Note a new TrendX mini-chart that has been added to the daily M3 dashboard.
The chart only looks back 10 days but it shows one of the most reliable tells of market strength (in my experience), that is, a 3 day moving average of the SPY pivot (high+low+close/3) versus the current SPY closing price.
Note weakness in XLU today (Vega model)...typically bullish, but this may be something else.

Monday, August 25, 2014

SPY 200... FINALLY!!....8.25.14

Well, there it is....SPY 200...and holding.  Yeah, it was weak volume but,as mentioned previously with Labor Day approaching and everyone apparently in the mood to party we can expect low volume for the rest of the week and a probability skew to the upside despite the uber overbought nature of the markets.
M3 continues to keep us on the right side of the action but keep an eye on the posted money management stops for XIV and SPY if things do get dicey.  For now the dashboard is all green....first time in a while.

Sunday, August 24, 2014

Hesitation at the Goal....8.24.14

Not all hands were on deck for the SPY's push to 200 so we'll have to postpone the celebration for a day or two but the 200 mark seems a distinct probability.  With light trading volume expected next week ahead of Labor Day it will be easier for market makers to drive momentum so we just need to be alert to the direction of the push.  For now M3 is still liking XIV but we're ready to hit the exit door if things turnaround.
There's a new look for M3 and a few changes to the algorithms that were developed last week during the independent testing.
At the bottom of this post the 2 year performance metrics and chart have been attached.  Subscriptions will go live Sept 1st but in the meantime ther free daily pre-close updates will be posted at the LOGIN tab.

Thursday, August 21, 2014

SPY 200?...........8.21.14

It's been a while coming but SPY is just pennies away from the magic 200 number.  At the same time the SPY TrendX chart in the side panel shows SPY hitting longer term overhead resistance so we should be prepared for a possible pop and drop scenario tomorrow....which coincides with Friday's historical odds of being a distribution day.
The VIXEN charts show the gradual  buildup in SPY momentum over the past few days and the VEGA chart confirms that the move has been market wide and not necessarily sector driven.
XIV has shown some hesitancy over the past 2 days but M3 still has a bullish rankings profile.

There are a few new additions to the M3 platform and the launch date has been pushed to August 31st to allow time to incorporate these features as well as risk/reward improvements that were developed over the past few days of M3 testing by a large hedge fund.  This was an exciting opportunity to have the oversight of professional platform testing technology and expertise to which I would not normally have access and M3 will be a better product as a result..

Monday, August 18, 2014

SPY / UPRO Pair as a Market Indicator

UPRO is the 3X SPY ultra bull ETF and many traders believe there is a simple leveraged advantage in trading UPRO in lieu of SPY....(assuming the direction of the markets is forecast correctly).
In fact, the relationship between SPY and UPRO is neither linear, geometric nor consistent and the 2 ETFs frequently display nuances of momentum and relative strength that appear to be at odds with one another.
Using the z-score algorithm that drives the Market Rewind/ MO2 Pairs Analyzer and detects and quantifies divergences in standard deviation cycles between two correlated inputs it is possible to create a trading model that capitalizes on periodic breaks in standard deviation thresholds (skew) and simultaneously goes both Long/Short  SPY/UPRO with a fixed time stop of 13 days.  This means that although the skew may continue for some time, the model will exit both sides of the position at 13 days.  At the same time, if the skew collapses prior to the 13 day time stop then the positions will be closed automatically.
The value of the time skew may change over time so to capture any potential volatility drift the N-Days value is recalculated each month. MO2's SPY/UPRO trade signals are vested 76% of the time. Trade results reflect returns of the pair over a 7 month period in order to align with M3 model performance metrics.

Sunday, August 17, 2014

Trend Continues.....8.17.13

Looking at the end of day results you can't appreciate the complete reversal the market made throughout Friday's session with a couple false starts along the way. For a while all the indices were deep in the red with prospects looking grim.  Then, mid afternoon buying took over and we ended in the green.  XIV was really on a roller coaster ride but ended up a few pennies.  The Qs continue to lead the indices in momentum.
Monday's following OPEX are frequently negative as the premium pump from last weeks expiration translate into distribution selling, but that forecast is more anecdotal than a statistical probability.
For now we in a holding pattern and looking for a range breakout one way or the other.
I'll be on the road Monday-Wednesday next week so postings may be limited although the SPY/UPRO study will be posted Monday.
There will be NO 12:45 M3 updates Monday-Wednesday.
M3 is going through some testing at a large hedge fund next week and any new refinements will be incorporated into the model before being formally offered for subscription.

Thursday, August 14, 2014

Signals are Green.....8.14.14

Positive momentum is surging, as noted on the M3 Update today. XIV continues its hyper drive move but we're getting into some technical congestion and the market frequently stalls after options expiration (tomorrow) so some caution is warranted.  Political news is good and earnings have been generally encouraging so it will be interesting to see the next monkey wrench that causes the markets to hiccup.
Free access to the new M3 is being extended to August 23.

Wednesday, August 13, 2014


A big pop at the open finally got the rankings update showing SSO at 7 AM today on the new Mosaic site. This time there was no fade into the close and XIV made an impressive 5% gain today although it did not come up on the closing rankings.
Based on how the new M3 model has performed over the past 10 days I've adjusted the momentum algorithm slightly to reflect a speed that is about halfway between the old M3 and the beta version new M3. I'm trying to avoid the typical problems associated with curve fitting an optimized model as maximum drawdown is just as important at total return as well as short term returns.  We've run a series of forward tests, backward tests, out of sample tests and latency tests to derive the M3 version that is the current benchmark.
The z-score pairs signals have also been altered to show the dynamics of the actual SPY/UPRO pair with a 10 day fixed time stop.  A full report on this pair will be issued as a separate post later this weekend and maintained in the Newsletter archives for reference. The results are quite consistent and provide an otherwise hidden perspective on the value of leveraged momentum.

Tuesday, August 12, 2014

Status Quo.......9.12.14

The bullish surge continued out of the gate but then turned negative for the remainder of the day.
Poor economic reports on the European front were allegedly the cause of the swoon but the future of the previous 2 day rally is now in doubt.
Eyes will be on earnings for M, WMT and JCP retail benchmarks tomorrow and Thursday.
Bad reports may cause a red tide of selling in an already weak sector.
M3 is still in cash per today's closing report.

Monday, August 11, 2014

Divergent M3 Signals......8.11.14

The bounce continued today although momentum fizzled into the close.
The new M3 signal has not yet reversed to cash but the old M3 signal did manage to catch today's action with a vested XIV signal.
The new M3 signal is shown on the M3 site while the old M3 signal is posted below.
This will be a good test of the new M3's somewhat slower momentum algorithms designed to avoid the whipsaws that have plagued the markets for the past few weeks.
We'll compare short and long term performance metrics for the 2 models at the end of the week.

Saturday, August 9, 2014

Breakout or Smoke?...8.9.14

Things didn't look that rosy at Friday's open and continued to deteriorate until 3 hours before the market close when news cam out that Putin was ending "war games" in the Ukraine...which apparently sparked wild exuberance and a fair amount of short covering to push the markets into a nice green Friday close.
Technical levels were substantially oversold so the spring was coiled in the bulls favor but a lot of shorts got caught in the uptick and had to buy to close so the bulls are swimming in muddy waters for now.
Monday should tell the tale a bit clearer.
Per the closing signal on M3 cash is the current signal. Per the closing note both pair charts are at a zero line cross...typically favoring bullish behavior

Thursday, August 7, 2014

Deja Vu.....8.7.14

Today's action was another pop and drop experience.  The markets are really having a hard time putting in 2 consecutive up days and although morning buying has attracted some interest, the afternoon has been bear territory. XIV continues its slide in a one step forward, 2 steps back pattern and M3 is still in cash per the free access M3 site.  These updates are published at 12:45 PM pst, just prior to market close since the model returns are based on positions established end of the current day.
XLU's prospects improved considerably today and WAG, which suffered an almost 10% hit yesterday made a nice rally after an early morning stall.  GE closed in the green....encouraging the bulls.

Wednesday, August 6, 2014

M3 Closing View....8.6.14

I'm back a little early so here's M3's signal for tomorrow.  We're still in cash for now despite SPY and XIV making a little breakout rally this morning...and failing into the close.  Surprisingly, XLU took a big hit today and I'm tempted to assume an opening Long at the 40 level based strictly on the technicals (that's just my idea...not a recommendation).
This is the longest period the model has been in cash all year but the recent day to day whipsaw have been avoided...which is a good thing.  Why step in front of a moving train?
The pair signals (charts not shown) actually offer an encouraging argument for an approaching support bottom but we're not there yet.  Meanwhile the Trend,X ALERT is bearish.

Saturday, August 2, 2014

As Bad As It Looks....8.2.14

Note the TrendX charts of SPY and XIV in the side panel...both have broken through long term support.....meaning either we are below support and due for a rally or we've suddenly entered a bear market.  Not to be flippant here just to point out that things could go either way at this juncture.
The SPY,SSO,VIX chart below dramatically illustrates how XIV has imploded over the past few days.  The XIV premium that accumulated over June and July has effectively been erased in 3 days. It's well known that bear markets fall faster than bull markets rise but that's crazy. Another day or 2 of  bear action will completely eliminate the XIV premium...a scenario that few would have predicted only a week ago.
VIX is kissing 18, which is technically a longer term resistance level, so the markets really are on a ledge at this point.
M3 remains in cash per Friday's pre-close signal. (see Friday's post)

PLEASE NOTE:  Daily updates to the newly refined M3 signal will be posted on the new M3 site.  Just click the "Login" password is required.  Free access will continue until August 15th.
General market comments will continue to be posted on this newsletter site.
There will be no newsletter posts or M3 updates this Monday-Wednesday due to my travel schedule.

Friday, August 1, 2014

Closing M3 Signal......8.1.14

Here's today's M3 closing signal as of 12:45 PST.
We got the expected drop and pop and and we're back in the drop mode for the weekend. After an impressive rally at the open XIV has crumbled once again and is down almost 5% into the close.
You can check out the new M3 site which will go operational mid August.
More details will be posted here this weekend. There will be no posts Monday-Wednesday next week.