PONZO Updates for SPY, VIX and TLT...04.19.16

If you believe the markets are irrational, non-linear and highly manipulated then you'll love this week's updates which have SPY wildly bullish, the VIX modestly bullish and TLT basically in a stalled consolidation pattern. So far earnings haven't been great although that hasn't stopped the market's recent low volume climb. IBM earnings report generated considerable selling and the Qs are looking weak relative to SPY and IWM (for now).  Later this week a number of big tech firms report and then on the 25th Apple reports in the face of declining expectations.
Expect considerable volatility thru and beyond that date.

A WIld Reversal...04.18.16

Overnight the markets were down big time based on the DOHA collapse (thanks to Iran) and then the Saudi oil workers decided to go on strike and everything changed.  Volume was  very low (about 55% normal) and Apple traded almost as many shares as SPY as earnings approach on the 25th and the short term consensus on the #1 tech stock has turned decidedly negative.
SPY is now extremely overbought going into the 21st, which promises to be a watershed day with earnings on deck for SBUX, MSFT and GOOGL, among the big names.
M6 is favoring the short side and TLT for tomorrow.

VDX Updates and More...04.16.16

Over at Zero Hedge (a favorite site for years) it looks like the shorts rule the day. If he's right then it's best to gird your loins and prepare to hunker down with a heavy bond coat (we still like TLT's odds).
Before we look at the VDX updates here's a fascinating (to me) article on a Equinix (EQIX) server facility in NJ.  It may give you a perspective on what's really going on during the trading day with the robots and the institutions while you await confirmation of your 1000 share order.
Now to the VDXs>>>
The chart I always consider is the VDI +/- and TLT is the only one with a positive VDI divergence.
How do we reconcile both SPY and the VIX having downslope VDI+ readings even though the overbought/oversold charts are diametrically opposite? One clue may be the volume chart of SPY which is clearly on the wane.  We have no volume data for the VIX so a metric comparison is not possible. One other caution on the SPY...current price action is blow the RSQ line.
Although there is the camp arguing for a breakout to new SPY highs, or at least a quick pop to 210, the technical odds are not so supportive.
LQB shifted its focus to bonds and away from equities over a month ago and so far that decision has been a good choice.  Longer term we believe that bond models offer a higher risk/reward payoff than equities but we're always prepared to change course if market conditions warrant.  

4 More Volatility Peak Studes...04.14.16

As a follow up to Monday's post on Volatility Peaks here are 4 additional studies of STOP Volatility that illustrate why SPY is an excellent target for high odds success while other sectors do not demonstrate the same linearity.

First, XIV.... the VIX inverse ETN...which hypothetically should offer great correlation odds if our peaks are based on volatility. Not so, it turns out and I've mentioned many times before how SPY volatility does not necessarily correspond with VIX volatility.  This study shows that volatility itself does not correlate highly with XIV price and in fact displays a distinct lag..

Then let's look at XLE, the energy sector, for which over 90% of traders currently have a bearish view. The latest issue of Modern Trader had 10 articles on the oil sector and not one was bullish.
The volatility peaks just don't work reliably for XLE.

Then there's the financials,,,XLF....a sector we might expect to correspond with SPY volatility..but this also turns out to be a low odds game. We do see a fair degree of volatility peak/selling correlation but the intrinsic volatility of the sector itself tends to muddy the waters a bit.

Finally gold, not a sector but a widely perceived inflation hedge.  Needless to say a quick look at this chart pair should make you dismiss forever any thought of trading these volatility peaks.

M6 SpIn....04.13.16

After 2 big up days the markets may slow down a bit into Friday's options expiration.  At least that's the odds based on the mean reversion mode of M6, which has managed to hold on to some modest gains using a top 2 ranking sort.  Compare the equity curves of the mean reversion and momentum modes to understand why the MR mode is preferable.
It was also a good day for delta neutral SPY players, although it looked a bit iffy in early going..
SPY is now at 208 and at MAJOR overhead resistance which we noted a few weeks ago as it was struggling at 204..
The big news overnight came out of China, which drove the global markets higher ahead of today's action. The few bad tidbits from retail sales figures failed to dampen the enthusiasm.
Note that the past 2 days have shown volume about  70% normal and that today's push was led by the Qs and XLF....the 2 sectors that we generally associate with high odds bullish moves.
We've seen these low volume melt-ups before...in fact they tend to be the norm, but a few bad earnings may reverse course in a flash.

PONZO Updates for SPY, VIX and TLT....04.12.16

This week's PONZO forecasts suggest an increase in SPY volatility although VIX and TLT remain in a fairly confined and low volatility channels.   SPY continues to demonstrate daily ATRs > 1% which is good for delta neutral players although the technical alignment of SPY and the VIX has deteriorated to the point that the XIV/VXX relative momentum signal is now underperforming the SPY/SH signal (dollar value adjusted).  This situation is a bit worrisome since its hard to reconcile a volatile SPY with a benign VIX.
Short term the outlook is neutral (no large breakouts/breakdowns anticipated) as long as prices stay within our bullish/bearish brackets.

Best Odds Parts 2.....Do the Opposite....04.11.16

A tip of the hat to long time Mosaic user Robert who emailed me after Friday's post to advise me that the way he trades the long term stops volatility chart is to short the peaks...a strategy he notes has limited the time he's in the market and has been successful 6 out of the last 6 times he's done it..
He uses his own signal to determine when the peaks are about to exhaust but basically waits for a 3 bar reversal signal on the 130 minute chart using a PSAR (parabolics).
Good job Robert!   Just goes to show that 2 heads are better than one and that there's more than one way to use this volatility data..
Keep in mind these are directional moves...in this case short....so no delta neutral protection but the
win/loss ratio does argue for some risk off exposure.
Top chart with arrows is the SPY , as is the bottom chart with SPY price action.
Middle chart is the VIX for comparison and confirmation purposes.