Thursday, April 30, 2015

Friday Turnaround?....04.30.15

Well, maybe.  The economic news has been a real hodge-podge lately and the technical signals are equally mixed...stocks down, bonds down, dollar down...something's amiss here.  With Friday being the first trading day of the month it SHOULD BE bullish...but its Friday, so the odds are skewed to the downside. the day started out with a glimmer of hope but gradually sank deeper and deeper into the red with SPY and associated indices hitting S3 and below.  The NYAD was truly dismal and there were few buyers of any size to save the day.  There was some recovery the last half hour, perhaps those hoping for a first day of the month pop, but the technical signals as such are still negative.
Then there's the sell in May crowd just looking for an excuse to go to cash so the bulls have their work cut out for them at present.

Wednesday, April 29, 2015

Chasing Our Tail....04.29.15

The suspected underlying weakness from yesterday's sub-pivot action picked up strength today with many of the big caps getting a heavy hit.  One of the most surprising (and disappointing) developments for some of the "smartest guys in the room" is the plunge in the dollar (UUP), which was on a bull run until recently.....and which is now plummeting with no clear support threshold in sight.  The Euro (FXE) meanwhile was a powerhouse of strength and the new M3 FX model already had it as a #1 pick so we were able to book profits on that move.
The M3 models are once again at odds with one another and the first trading day of the month is unfortunately Friday, which has an inherent bearish skew so the reliability of the technical signals is a complete mishmash.
An interesting aspect of the UUP daily bar chart below (also applies to FXE) is the nice parallel alignment of the Ergodic and ADX indicators....a situation we do not see in the SPY or QQQ.  The immediate implication is that the currencies are actually less subject to HFT manipulation than the indices ETFs.....a thesis that flies in the face of the commonly held assumption that the currencies are more subject to manipulation than stocks or ETFs.

Tuesday, April 28, 2015

Weaker Than it Looks...04.28.15

We're inching towards the end of the month bull pop but the market's are still in overbought territory and the lukewarm reception to APPLE's whoopee earnings report should serve as a cautionary note.
A check of today's SPY chart shows SPY never got any traction above the pivot and in fact swooned down to S2 within 30 minutes of the open.  As a aside...if you don't believe in the price magnetism of the pivot's price swings should make you reconsider. (the solid yellow line is yesterday's close).
The continued divergence of the ADX and the Ergodic indicator are a further sign that there is no trend in effect right now, just a lot of HFT skimming.
Tomorrow's a FED day...typically bullish and volatile... but the current mixed signals on LM and M3 suggest that not all stars are aligned in the bulls camp at present.

Monday, April 27, 2015

New M3 FX model....04 27.15

This is a model I've been working on for quite some time. It's a spin off of the old M6 Small World model but uses the currency ETFs in lieu of the country ETFs. When the equities markets get squirrelly (like the past 4 months) and it's hard to find a trend this model may provide an alternative investment scenario.  Another nice feature (if you have a Schwab account) it that you can basically trade the model commission free since all the ETFs (except UUP) are in the Schwab One-Source portfolio. (use SCHB in lieu of SPY).
Note the total drawdown stats.  The model uses a .5% daily limit stop across the boards that effectively doubles the longer term returns.

Saturday, April 25, 2015

Apple on Monday...04.25.15

With tech at a 15 year high, valuations a standard deviation above the norm and the markets technically overbought we SHOULD be ready for a reversal mode.  The hot results from NFLX, GOOG, AMZN, MSFT, SBUX, etc. have set the excitement bar pretty high and APPLE's Monday report will definitely set the tome for the week.  Expectations are high.
In the meantime here's the VDX and PONZO studies for SPY as of Friday's close>>>
Note that the VDX is NOT at a SELL threshold and PONZO is 60% bullish, short term
Friday's closing action followed the sell the close pattern of the past week, although it was more muted than the previous 4 days.(hopes for APPLE????)
We were able to squeak out two 45 minute trades based on the ADX divergence (below) and we'll delay our discussion of that dynamic until next week when more time permits.

Thursday, April 23, 2015

Sell the Close...04.23.15

I'm old so it sometimes takes me extra time to comprehend the obvious.  Thus it was today when a light bulb went off in my head about 15 minutes pre-close. I've been trying to figure the recent open/close dynamics and I finally realized that its really very simple...and understandable.
Traders are simply selling the close in anticipation of after hours and pre-open earnings announcements.  Better safe than sorry as we climb further into overbought territory on extremely tenuous fundamentals.  It's become clear that the big multi-nationals have been hit hard by the dollar's swoon although the dollar now sits on the 50 day moving average and is now on a make or break point.  Nevertheless, with over 25% of the S&P companies having reported earnings less than half have exceeded consensus estimates (five year average is 58%).  The growth rate for revenue for 2015 Q1 was actually a minus number (3.3%).  So how can we be hitting new highs?
Let's blame the HFT algos.....there's considerable evidence to support this thesis.
Below are the 3 minute and daily bar charts for SPY using my favorite Ergodic indicators and the ADX, which I posted about yesterday.  The reason I posted 2 different time frame charts below is to advance the argument that momentum/ADX are both common, periodic, mean reverting and fractal (pattern occurring in multiple time frames).   This is pretty interesting and may be the stepping stone to another way of evaluating the "true" trend of both the short and longer term price moves. Tomorrow I'll continue this line of thinking and examine how we might construct a more holistic trading model using these indicators.

Wednesday, April 22, 2015

ADX Divergence...04.22.15

Another screwy day for us technical traders as the algos played dirty at the open before rallying in the afternoon session.  With over 150 companies reporting earnings this week you can't blame traders for their rampant displayed in the wild intraday swings we've seen lately.  In an effort to try and find some transparency (and edge) in this narrow range environment I was looking at how the ADX has reacted to April price action.  The results are shown below and are actually quite illuminating.  The ADX, as most readers probably know, seeks to define when markets are trending, as opposed to consolidating.   Per the linked artcile, ADX readings less than 25 are associated with very weak or non-trending markets.  For the month of April we've seen the ADX steadily erode from 24 to a current value of price has diverged to the upside.  The net conclusion is that this is a dangerous market, (does that sound familiar?) so my recent focus on containing risk and avoid capital drawdowns may be more understandable.

Tuesday, April 21, 2015

Needles and Pins...04.21.15

The best word for today's action......jumpy. A nice NYAD pop at the open was in full retreat all day. The XIV, which had looked promising for much of the day, finally closed in the red in the last few minutes of the market  Volume was very low...about 40% of normal...and the VIX struggled to find some traction, without success, throughout the day.
Reiterating yesterday's best odds scenario>> it may be a sleeper for the rest of this week with the risk/reward equation skewed bullish next week as we head into the end of the month fulcrum.

Monday, April 20, 2015


The over the top selling on Friday was reversed to a large measure today, supporting our VDX forecast for SPY posted after Friday's close.  Volume was only about 50% par so Tuesday should give us a better picture of how much of today's buying was in fact the product of short squeezes.
This week is full tilt on earnings reports and the markets are still at the whim of exceptionally good or bad news.  Rather surprising to me the M3 is still in cash while LM has taken a more bullish position.
This remains a volatile high risk environment and for my own accounts I am assuming only 50% vested positions and closely following the stops. Next week may present a more favorable risk environment as we tag the end of month high odds window for the bulls.

Friday, April 17, 2015

Weekly Ponzo Updates...04.17.15

We had forecast a down day today but were not prepared for the vicious selloff that ensued.  The NYAD opened at .16 and never got past .44....there were just no buyers on this options expiration day. Volume was only about 20% above normal...a bit unexpected given the persistence of the selling. From a strictly historical perspective S2 busting lows tend to be revisited so Monday may see a return to Friday lows with carry over selling.
The Ponzo VDX is testing the BUY threshold although the Ponzo 18 week risk forecast remains skewed to the negative.  M3 is in cash.

Thursday, April 16, 2015

Looks Like Wednesday...04.16.15

Freestockcharts has finally pulled the plug on Silverlight which means that Chrome users must now revert to Firefox or IE to see the TrendX charts and the TrendX update on the Newsletter site. 
Have no idea why Chrome made this move but there it is with no odds for a reprieve.
Meanwhile volatility issues were off the charts today with XIV and VXX swinging wildly and apparently in total disregard to how the SPY was performing.  Friday is options expiration so we're in a defensive posture given the lows odds for the bulls.  One day at a time for now.

Wednesday, April 15, 2015

Strong open fades into Close.....04.15.15

It was a strong open with the NYAD above 3, which almost always ends with a green day.  That's what happened today but the last 2 hours saw increasing volume and the last hour saw a solid sell off. The NYAD was also downslope for the last 2 hours with a big volume drop in the last 10 minutes.
The SPY TrendX indicates some upside potential but we're clearly hitting strong resistance at this point and although Thursday's odds are neutral Friday is options expiration and the odds for a downturn then increase significantly.

Tuesday, April 14, 2015

Ponzo 25 year lookback on the SPY....04.14.15

Yesterday we looked at the S&P forecast using a 50 year analysis of the GSPC.  Today we compare the results of that forecast with the SPY ETF using a 25 year lookback.  The last 25 years have a much more dramatic chart path and massive relative volatility.  Many argue that the first 25 years of the S&P have considerably less relevance when developing forecast models so I've once again run a Ponzo update using the SPY ETF.  The net result is that the SPY version has a more bearish tone with lower odds for short term neutral performance.....and while the model is obviously just a mathematical formulation of bull/bear odds based on a 25 year lookback at what has happened when similar price patterns have does help to frame a risk profile for short term investing.

Monday, April 13, 2015

SPY Ponzo Update....04.13.15

Here's a look at the SPY Ponzo risk projections updated for the next week. We have gone from 54% negative last week to 41% negative and 41% neutral for this week. This is a somewhat more benign forecast. unless you happen to be bullish.  Earnings are still the big catalyst on very low volume.

Saturday, April 11, 2015

VDX Outlook...04.11.15

The market's had a remarkable run this week given all the negative news and bearish sentiment prompted by earnings fears.
M3 did a great job of capturing the move and ended up 8% for the week. The beauty of an algorithmic approach is that it tends to be smarter than the average brain which tends to get clouded with information overload, as least mine often does.
The SPY TrendX suggests there's still upside potential as does the latest VDX update below.
The XIV, on the other hand, has now crept into overbought territory and after a huge move last week may be due for a pause or reversal.  VXX is now at all time lows which might be a prompt to take a hedge position against a market reversal...just keep in mind that left to its own over time VXX would ultimately decay to zero since its comprised on constantly decaying derivatives.

Thursday, April 9, 2015

Risk Profiles..04.09.15

Tomorrow's Friday so we're facing a 70% bearish skew.  Meanwhile, earnings are mixed so far and the big dogs start reporting next week so we may see some fireworks then.  The markets started out hesitantly today with some wide swings in the NYAD and the indices ultimately finished in the green although there were a few laggards of note.  The dollar's back up to 26 and model performance continues to follow net earnings guidance.
It was a good day for both LM and M3, but the usual caution remains to follow stops religiously.
The current VDX profiles for SPY and XIV remain neutral to bullish.

Wednesday, April 8, 2015

Carry Through...04.08.15

An early pop faded to red in the morning session but picked up traction after the FED minutes failed to stimulate the markets either up or down.  In contrast to the last hour sell off seen the first 2 days of the week today's action was positive.  The markets are still at the mercy of upcoming earnings reports and it remains to be seen if prior downplays of this quarters will suffice and whether the effect fo the strong dollar has been overplayed.  Fasten your seat belt.

Tuesday, April 7, 2015

SPY Hits the Wall...04.07.15

Dave Moenning hit the nail on the head the bi-polar market.  Traders are poised on every grunt and burp from the Fed governors, which is what drove this morning's sudden collapse 30 minutes in.  Lessons to be learned from this morning>  1) the HFT algos all trade in sync and woe to those on the wrong side of the trip wire. 2) the game is rigged against the little guy and technical analysis has eroded into chaos theory during the past few months.  Any good news?  Not yet.  Cash is still king. We did manage to score a few bucks on the M3 overnight XIV position but closed that after only 45 minutes in based on the special ALERT emailed to subscribers.
The last hour sell off yesterday and especially today offers a scary hint as to what may be coming once those big multi-nationals start crying about the last earnings quarter. Some of the saner heads on CNBC say don't worry...that last quarter those same firms warned of slow downs and an expected 6% pullback in earnings.  Traders memories are very short however, something in the neighborhood of 2 minutes if you follow some of the latest brain research. SOOOOOO...don't be surprised when those past warnings are long forgotten and poor earnings are greeted with shrieks and panic selling. Just a little warning here.

Monday, April 6, 2015

PONZO Risk Forecast for SPY and VIX....04.06.15

Here's the weekly update of the S&P and VIX 18 week risk forecasts.  Keep in mind that the S&P forecast is based on 50 years of S&P data while the VIX is based on 25 years, slightly after its inception.
As a point of interest...if we use the SPY ETF as the S&P proxy and calculate a risk profile based on 25 years of SPY data the NET 14 day risk profile deteriorates to negative 80% versus the 54% generated by a 50 year backtest.
Yes, I can both SPY and VIX have projected negative risk profiles? Obviously the volatility conundrum that has plagued the markets for the past several months is alive and well and until XIV (VIX inverse) and SPY get back into sync this disparity will continue.

Thursday, April 2, 2015

Calm Before the Storm?...04.02.15

A low volume narrow range (relatively) day that ended in the green but suffered a high volume nasty selloff in the last 5 minutes.  Non-farm employment report on Friday consequences will be seen Monday and in the bizzarro upside down world of market gamesmanship traders are looking for a poor jobs report as BULLISH since it would likely help discourage the FED from raising rates in the Fall.  You just can't make this stuff up but that's the current topic of the talking heads.  Go figure.
Here the current view of the markets via Schwab. The muddle theme continues.

Wednesday, April 1, 2015

First Day Fizzle...04.01.15

So much for the first day of April as a bullish mover.  The chop continues and the odds for tomorrow being a red day are 70%.  Today's action was allegedly due to wild overnight action in the S&P futures with a massive selloff and a modest recovery.
But you get too bummed by today's action keep in mind that April is typically the strongest month of the year although (there's always a catch) that bull surge also typically occurs in the second half of the month.  Meanwhile the current trend is clearly negative.