Tuesday, March 28, 2017

Ponzo Updates as Buyers Kick In...03.28.17

We were looking for a rally based on yesterday's reversal action and today's action was solidly bullish with bonds, utilities and gold down and all the indices solidly in the green...although volume was muted.   The current Ponzo forecasts mirror the bullish argument as it appears the buy the dip mentality is still active.  And, TLT still looks like a solid momentum play despite the daily ominous warnings that bonds are crashing.  Now we just have to check tomorrow's action for possible short covering backlash.  In the short term, baring any new geo political crisis, (what happened to the imminent N.Korea and Chinese military threats?), it looks like relatively smooth sailing.

Monday, March 27, 2017

VDX Updates....03.27.17

This week's VDX updates suggest a possible bullish move as the week proceeds. This move is further supported by today's solid climb from S2 and below levels back up to the pivot.  Only financials remain in the dog house and we need to be alert for a possible trap door setup on Tuesday...(looks like a recovery only to plummet to new lows).  Volume was moderate today with a taper from the opening 2 hours.  The complete reversal swing of the VIX today from +10% to -2% reflected the internal dynamics of market momentum.
All 3 components of  our little market model  are at above overbought or below oversold levels.
BTW, we exited our SPY straddle Friday at noon (PST) after Zero Hedge noted the odds of a health bill vote were less than 10%.  We lost 7 cents on the trade  (x100).

Thursday, March 23, 2017

SPY Straddle Before Healthcare Vote..03.23.17

Here's a setup that may benefit from resolution of the impending healthcare vote.
A smarter dog would have purchased this a week ago hen IV was more muted but as the suspense and likely financial stakes have been so well demonstrated over the past 2 days this may be something to consider.  These options expire on the 29th so rapid time decay is a factor.
We would likely exercise sell to close as soon as the vote is announced.

Wednesday, March 22, 2017

Gold Prospects...03.22.17

Expect big volatility tomorrow as the proposed new health bill comes up before the House for a vote. Odds currently favor a No Pass but we all know that consensus opinion has been wrong many more times than right lately so best to stand aside on this one. If the vote fails we may be in for a sustained pullback where buy the dip is not a wise course of action.  Look to straddles or delta neutral for maximum risk control until this tipping point passes...then we just have to contend with North Korea, the Russian /Trump conspiracy pushed by the Republicans and a few other looming crisis.  These are dangerous times and the fact that the VIX has remained low range is more than surprising.
If things do get rolling to the downside then bonds, utilities and gold/silver are likely to explode.
Here then is the current outlook for gold....which will undoubtedly look much different come Friday as one of the divergent outlier risk scenarios kicks in..

Tuesday, March 21, 2017

Financials Plummet....03.21.17

Uncertainty about North Korea's intentions, the imminent threat of nuclear war, and the Republicans failure to get consensus on a new national health care plan combined to create a perfect storm for the financial markets as seen through the lens of XLF. And...there's little reason to think that we're going to see a meaningful rebound soon....the fact is those same uncertainties have plenty of room to fester and the next support level is down another 8%..
The purple line XLF Ponzo scenario is something to consider before jumping back in..
BTW, someone sold off $ 1.3 billion in Apple stock at the open....a likely case of buying the rumor and selling the news (Apple' new red iphone and ipad offering).

Monday, March 20, 2017

Ponzo Updates.....03.20.17

This week's Ponzo forecasts have 2 new shifts in momentum. SPY has rebounded from a negative short term outlook to a net neutral/bullish stance although the 19 week target has declined from 25 to 248 in this update. The VIX outlook supports the SPY bullish case and I've left last week's brackets in place (dotted black lines) to show how the VIX outlook has turned negative (bullish).
TLT meanwhile looks exactly like last week, mildly bullish.

Saturday, March 18, 2017

XLU Butterflies...03.18.17

Following Thursday's XLU post here are 2 example of butterfly trades using calls, one near term (April)and one farther out (June).  With the Ponzo forecasting XLU at net flat 18 weeks out this type of trade can often produce a very attractive risk/reward ratio...especially the longer term version.
These are, of course, examples only, and not solicitations to buy or sell any securities referenced.
And a longer term setup...

Thursday, March 16, 2017


One of the many mysteries of the 2017 market meltup is the continued rise and strength of the utilities sector ala XLU. Utilities are typically viewed as a safe haven in the same vein as bonds have enjoyed for the past  2 decades.  Price volatility is generally moderate with cycling patterns that often mirror ex-dividend dates. What we're seeing now is something different and something of a contradiction to past price correlations to SPY versus XLU.
While it's beyond the scope and ability of this feeble old brain to try and explain this new paradigm what's interesting is that the outlook going forward per Ponzo is net neutral at 18 weeks out.
This is an option traders dream come true for neutral butterfly setups and tomorrow we'll look at a couple risk/reward situations.  There are still outlier scenarios both up and down at the 4 standard deviation level but the consensus view is strongly neutral.

Wednesday, March 15, 2017

Emerging Markets Poised.....03.15.17

With yesterdays' Fed rate hike, the election of a mainline Dutch candidate and a surge in Treasuries the merging markets now face a test of faith. The machinations of various political entities, including the FED, have only served to further destabilize the "normal" (historically backtested) technical indicators and financial correlations that we utilize to gain a trading edge in the markets. Along with fake news, fake weather and fake sports we now enter an environment of fake (highly manipulated) markets.  This is not a reassuring time for large long term capital investments.
That said, here's the current outlook for EEM..which looked about to crater before the Dutch election and revived hopes for a "sane" outlook to the coming French vote.Per the current Ponzo forecast the STDev has been cut almost in half since our previous med-February post while the range of outlier scenarios has expanded.

Tuesday, March 14, 2017

Ponzo Updates...03.14.17

This week's Ponzo forecasts are uniformly negative for SPY for the next month wth improving prospects thereafter.  The VIX benchmark has risen into the 12s and the TLT forecast is showing lowered expectations for the 18 week duration.  TLT is currently managing to cling to the critical 117 level and tomorrow, March 15th, which has become the new Armageddon for market naysayers, may provide a strong go or no go  signal.

Saturday, March 11, 2017

VDX Updates and Trader's Outlook...03.11.17

VDX updates this week have SPY neutral with a recent VDI +/- crossover, VIX somewhat above neutral and TLT in a much more precarious oversold position than only 2 days ago (see Thursday's post).  Most of the talking heads are spouting odds of 100% for  FED rate hike next week as well as pointing to various ominous technical indicators portending an imminent pullback of indeterminate length and strength.  This week we saw the advance/decline deteriorate for the first time in 3 months
Trader's Outlook is equally ambivalent about prospects next week and I indicated last week the failure of many of the technical indicators that I monitor to provide clear signals going forward has driven me to a now 95% cash position for the sake of safety and sanity.

Thursday, March 9, 2017

Treasuries at Tipping Point...03.09.11

We mentioned last week that 117 looked like the long term support level for TLT.....a level that was penetrated today.  The mood has clearly become bearish for bonds and prospects for a recovery are cloudy.  These developments put a damper on recent TLT Ponzo forecasts which suggested modestly positive action for the next 18 weeks.  AND, if Yellen's hints that March will see a FED rate hike come to pass the odds for a Treasury recovery diminish even further.

Wednesday, March 8, 2017

Gold vs Silver Part II....03.08.17

Following yesterday's post here are the current gold vs silver pairs analysis and the accompanying VDX charts.  What's to pay attention to here is the recent disconnect in gold/silver correlations...which can be immediately detected by looking at the status of the 6 month equity curve.
We always expect paradigm shifts which is why we only look at 6 month metrics and the crossover of the equity curve below the RSQ linear regression line about 1/30/17 was a clear sign that no signals should be vested from that point forward.  Regarding the pairs signals we are in a standby mode until the equity curve does demonstrate positive slope (moderate risk) and then crossing above the RSQ line (low risk). Both the VDX charts look grim and that big hit on March 2 for silver was the marker for the $ 2 billion sell order that started the day.
Pairs chart is small so click once to enlarge.

Tuesday, March 7, 2017

Gold and Silver Diverge..03.07.17

Current momentum in gold and silver via the Ponzo forecasts is now divergent.  Rather that enumerating the (manipulated and self serving) geopolitical arguments supporting strength in gold vs. silver re India, China et al I tend ti just look at price action and from that perspective gold looks like a safer bet than silver.  HOWEVER, with recent sharp declines in aluminum and copper I'm inclined to hold off on any new positions until we get some supportive technical confirmations....which we will examine in tomorrow's post.

Monday, March 6, 2017

Ponzo Updates....03.06.17

This week's Ponzo forecasts mirror last week's outlooks...weak for the SPY, neutral for VIX and slightly bullish for TLT.  If we do get a March rate hike price dynamics may get volatile and push the markets out of a momentum paradigm.  For now the markets are in a (weak) consolidation pattern as political issues are prompting a more uncertain Spring.  Earnings are pretty well over and the general tone has been upbeat.... supporting the recent run up.  However, I tend to be overly cautious and other than delta neutral positions I'm 90% in cash until a clearer picture emerges for the near term.

Saturday, March 4, 2017

VDX Updates, Trader's Outlook and $600 million sell order on AMD....03.04.17

The VDX updates continue to cycle with great regularity although the TLT situation could turn precarious if we do see a March rate hike and the yield curve jumps.  Best to keep on eye on 117 lower support...if that breaks then the next support level is a ways down.
Trader's Outlook is neutral for this week with a few caveats as Goldman advises buying puts for the second half of 2017. Since SPY has already reached the Ponzo mid year forecast levels it can be argued that the markets have gotten ahead of themselves and are due for a pullback.
Of some interest for regular AMD traders....(I'm one)...Friday started out badly for AMD as Goldman opened with a $600 million sell order (45 million shares) at $13.70.  The chart below tells the tale as the sell order was filled in the first 30 minutes and AMD gradually sank into the 12's before an afternoon stabilization ( not recovery) on massive volume.
A couple more orders like this and AMD will be back to the 11's.

Thursday, March 2, 2017

The Rocky Outlook for Silver...03.02.17

Following yesterday's outlook on gold silver crashed overnight on huge volume as buyers disappeared from the market. And going forward the technicals don't look encouraging with 4 out 5 Ponzo scenarios negative. This is a case of beware the falling knife since we may be witnessing the beginning of something, not the end.
Selling tends to beget selling and support is actually down around 15.50....a ways down. The mean reversion signal has not fired yet so any buying at these levels is a highly risky situation.  Based on past plunges of this magnitude where gold and silver momentum diverge wqe expect to see some bottoming pattern like a hairy bottom develop before a true recovery kicks in.

Wednesday, March 1, 2017

GLD Prospects...03.01.17

Here's a quick look at the current gold ETF GLD and the trading opportunities based on the VDX and the longer term Ponzo forecast.
Note the current VDI+/- alignment....ready for a paradigm shift.
The general technical consensus on gold is bearish but a lot can happen to reverse that view...and it can happen in a flash.  With odds rapidly increasing for a March rate hike and a sudden swoon in bonds today as all the majors blew through overhead resistance to brand new highs the momentum on gold has stalled. The next couple days should be instructive for golds near term prospects......if we get a rally follow through till end of the week then the markets will be prone to a pullback favoring gold.