XIV Trap Door Opens...7.31.14

We theorized a couple days ago about the possibility of the XIV premium returning to zero and today's action got us well on the way. The VIX is up 25% while XIV is down over 9% and all this weakness is based on nothing tangible other than a complete lack of buyers.  The NYAD (NYSE advance decline line opened at .10 today...as bearish as it gets...and never made any headway as it looks to close at .12.
That's as weak a reading as we've seen all year.
Technically we should see a bounce tomorrow based on the dramatic violation of all short term standard deviation metrics.  Whether that will materialize remains to be seen.  Typically we'd see a lower low as folks who couldn't watch today's live action place after hours orders to sell at the open (not recommended).

M3 Closing SIgnal....7.30.14

We got the expected bump today from the FED. It was minimal. XLU took a heavy hit ...bit of a surprise.
Here's the outlook for tomorrow via the new M3.

Waiting on the FED?....7.29.14

Another volatile day with the indices trying to find some traction.  It looked like the bulls were in control until the last 2 hours of the day when everything fell apart and red was the dominant closing color.  Amazingly the XIV actually closed a nickel in the green.  Hope springs eternal.....possibly driven by the tendency for FED days to be big winners.  Volume was skimpy...evidence of general indecision in the markets.
Signals for tomorrow are truly mixed.

End of Month Push?....7.28.14

A rather stunning reversal during the course of the day on all the indices and XIV in particular.
We started the day firmly in the bear camp and ended the day in the green.
Not all sectors joined the rally but utilities enjoyed a nice push...which is typically bearish, but this is not a typical market.
Here's a few views of the new M3....all new algorithms on both the momentum and auto-stop sides.
Although the model only looks back 6 months I've also shown a 2 year performance report to get a better perspective on how the model has behaved longer term.  Going forward the default model will be shown with the auto-stop in the ON position.  The 2 year equity chart below also shows there is still room to enhance returns with discretionary application of the RSQ and P6 stops.

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More Bad News Dives Markets....7.27.14

We may have reached a critical mass with all the bad geopolitical news driving the markets down the perennial wall of worry.  Evacuation of the Libyan Embassy, rising death toll on the Israeli/Hamas front,
planes falling out the sky left and right and the slow realization that the European community isn't going to do anything to Putin in fears that their natural gas supplies will be cut off. Coupled with massive storms that continue to swirl around the US reeking havoc and destruction some of those end of the world street preachers are starting to pick up a following.
Meanwhile the markets are still optimistic based on the latest earnings reports with a few glaring exceptions like Amazon and we are fast approaching the end of the month and....possibly...a rally off declining support levels.  For now M3 likes cash and the dashboard for Monday is cautious to bearish.

Treading Water...7.24.14

Today's action looked a lot like yesterday.  AMZN stumbled but they've actually never made money so it was just a case of losing a little bit more as they ramp up the drone delivery program.  (HA).
Here's a look at the new M3 dashboard which will be released this weekend.
The best news for the bulls is the VEGA chart below which clearly shows the gradual and on-going melt-up.
The neutral behavior of XLU over the past few days is supportive of the bull case.
Maybe SPY 200 tomorrow although the Z-score readings are negative.

All Quiet for Now......7.23.14

Solid earnings reports from MSFT and AAPL helped keep the markets mostly in the green although we did close the day with both VIX and XIV in the red...always a cause for closer scrutiny as this convergence frequently signals a big momentum change...at least short term.
On the bullish side SPY keeps creeping towards the 200 mark and with most earnings reports coming in positive and dwindling interest in the Israeli /Hamas conflict and the Ukrainian air disaster the odds favor a risk on strategy.

XIV Premium Overview......7.22.14

Markets are moving higher apparently..... although we're actually just treading water at this point when we consider momentum.
Below is a look at the 7 month XIV versus SPY premium chart.  We can see that the current situation is historically unique, with the premium actually having a negative value earlier on in the year.
If XIV mean reversion kicks in then all bets are off and the exit doors are going to get crowded in a hurry.

For now we have the odd M3 ranking of SSO in #1 slot and the new M3 dashboard is cautiously optimistic.

Leadership Lag......7.21.14

In response to a reader query on my contention that SPY is generally  lagging the other indices here's a little study of SPY, DIA and QQQ using M3 to look at leadership momentum and it's clear that SPY has been the recent laggard.
Using the M3 rankings it has been possible to generate a slight premium return over a SPY buy and hold strategy, however, if we consider the cost of commissions and the hassle of keeping track of ranking positions and executing timely trades the chasing this model has little payoff.
That being said, the model reflects no management stops.  Had we used this model and gone to cash in late February and then re-entered the market is late April using the P6 STOP we could have added an additional 4% to our net returns.

Out of the Woods?.......7.20.14

If Thursday's action got folks stirred up about "rigged" markets Friday really set em'off.
XIV made an astounding 80% recovery from Thursday's plunge while VIX dropped almost 50% of its Thursday gains....and all the indices joined in the bull run.
We always expect added volatility at expiration Friday but this was one for the books.
M3 remains in cash based on the ALERT status and despite the vacillations of the rankings.

I've added a little dashboard to M3 to display a kind of consensus signal based on the various indicators.
This should help clarify what M3 is trying to tell us and make the risk on/risk off decision a bit easier.

REALLY Bad News.....7.17.14

Right out of the box you knew it was going to be bad.  Rumors that Yellen's liquidating personal market holdings and the news that Ukrainian Separatists may have shot down a Malaysia airliner with over 300 folks on board sent a chill through the markets that only got worse as the day wore on.
The VIX rose almost 40% in the afternoon session and XIV took its biggest hit ever with a 9.5% decline.
Conspiracy bloggers noted how convenient today's plunged appeared...yesterday was expiration for hundreds of thousands of VIX options which expired worthless.  Had today's events occurred yesterday a lot of VIX call holders would be a lot, lot richer.  That's the market for you.
Today's drop definitely put the scare into a lot of traders and if the trend follows the classic 3 day buy/sell cycle then there's more to come.
Technically the SPY and XIV TrendX charts are approaching support levels...that's on the positive side.
Even XLU utilities took a hit, unusual for a red wave, but the metals GLD and SLV soared.
I'm listening to the evening financial news and the analyst just said, "I don't see any cause for concern; there's a tragedy somewhere in the world every day.  This one was just high profile enough to rattle the markets".
Quite a rattle.

Second Mouse Gets the Cheese...7.16.14

So much for a fading XIV. Upbeat earnings helped to propel the DOW to new highs and the XIV premium continues to climb. I've been doing some research on integrating the XIV premium chart with the Short Term ALERT and hope to add an indicator to the free Mosaic TrendX site next week.
Discounting any REALLY bad news we are now back on track to SPY 200 and beyond.

XIV Premium Fades....7.15.14

Endemic weakness gradually spread across the markets today leaving M3 with an unusual ranking for tomorrow after XIV's mini-collapse.
Note that the Pairs charts below have both come down and crossed the zero line, completing a relatively short excursion into weakly bullish territory.
We're used to seeing either XIV,SSO,SPY or SPY,SSO,XIV ranjings, so SSO as an outlier reflects a situation of significant divergence between SPY and XIV.
Whether this anomaly is a byproduct of options expiration later this week or something more visceral remains to be seen.

The XIV Premium....7.14.14

Monday morning and the bulls are off to the races. VIX is down 4% and the indices are destined to close in the green despite worsening conditions in the middle east.  What, me worry? is the mantra carrying us along to the inevitable SPY 200 payday.
Here's a look at this morning's markets with the freestockcharts M3 template and below that is an interesting (to me) look at what I'll call the XIV premium chart (also the VIX premium chart).  They look at the value of SPY relative to the value of XIV and VIX respectively.  Now we talked extensively before about XIV being and ETN tradeable only as a security and VIX being an index tradeable only using options (or futures), so there is instability between the 2 instruments.
Nevertheless, we can see in hindsight that trading XIV in lieu of SPY with M3 has been a wise choice and that going forward if XIV is mean reverting to SPY then we may be able to redefine the argument for trading SPY based on XIV momentum.  Our goal of course is to use M3 to detect this regime change and capitalize it.  Meanwhile, the XIV juggernaut keeps chugging ahead.

Tentative Green...7.11.14

The indices managed to close in the green today despite SPY and DIA spending most of the day in the red.
XIV climbed into the open and then tapered off for the remainder of the day.
Given the position of the Pairs charts (below) it looks premature to give an all clear for resumption of the bull trend and with July options expiration next Friday we're probably in store for more than usual volatility next week.
M3's closing signal for Monday is cash.....today's surge being unable to produce a vested projection from the rankings calculator.

Fizzle.....7.10.14

Yesterday's FED driven market pop evaporated like a puff of smoke before the open today.  Once again there was some modest strength into the close and the VIX subsided from an almost 10% jump but once again we're in a tenuous support position (see TrendX charts in right side panel.).
Per yesterday's comments on using VIX action as a forward looking telltale the free access TrendX site has been revised to a 10 minute bar format and a XIV / VIX real time chart has been added to the mix.
The M3 short term ALERT has remained in a STOPPED mode through yesterday's positive move and is still at that status demonstrating its true value when debating the wisdom of a new vested position based solely on the input rankings.

Back in the Saddle?.....7.9.14

We got a new M3 XIV vested signal 20 minutes in today and the markets maintained positive momentum throughout the remainder of the day.
The weakness in yesterday's VIX momentum was a good telltale of today's pop and going forward we'll make a effort to incorporate a VIX based TrendX into the side panel metrics to accompany SPY and XIV and help detect momentum lags like yesterday's.
Keep in mind that XIV is an ETN and trades like a stock (no options), whereas VIX is an index based on SPY put options and only trades as an option so we can expect some discontinuity in the divergent correlation of the two instruments as expiration approaches and implied volatility fluctuates.

Due for a Pause?...7.8.14

Another red day for the indices but the VIX refuses to go up proportionately and most near term VIX calls actually saw little or no value improvement today.  Just as yesterday there was a positive surge into the close and with 3 down days we may be ready for at least a short term reprieve.
Note the current positions of the short term ALERT and the Pairs charts: Just as we approached a negative skew threshold 3 days ago we are now at a zero line cross in the SPY/XIV (A)pair and approaching a zero line cross in SPY/SSO (B)pair, which typically is a vested opportunity.