M11 Market Outlooks...12.29.16

Coming up on the end of the week and a so far disappointing Santa Claus rally the M11 outllooks are mixed with the mean reversio paradigm the recent winner but now facing a 2 Day Alert stopped situation. The $60 Billion pension fund rebalance is still in progress and with tomorrow's volume expected to be particularly low the effect to the downside may be more obvious as program selling is set to commence 3 times during the session...EST. 9:35, 11:55 and 3:35.

Ponzo Updates vs Your Brain....12.28.16

This week's Ponzo updates are remarkably similar to the forecasts of the past 2 weeks.  Momentum remains positive in SPY and TLT and neutral in VIX.  Today's selling action may or may not be the start of the Santa Claus rally pushback and tomorrow's action will be very instructive.
Speaking of instructive, here's an interesting article to ponder as you formulate your trading plan.
Thanks to Jim K. for the nice note following today's pop in TLT.....an event I've been arguing for over the past couple of days based on multiple Mosaic signals.

Positive Signals for TLT...12.17.16

Following Sunday's post on TLT here are a few more indications that the yield curve may be constrained going into 2017 with limited yield impact from potential FED rate hikes.
Of course this is Santa Claus rally week but we've seen TLT run convergent with SPY before so this is not necessarily a problem for a rise in TLT.  
Note that the 2 Day Alert signal is completely divergent on M1 versus VPR.

VDX Updates as TLT Looks Interesting...12.25.17

This week's VDX are generally unremarkable in that last week's neutral momentum has been maintained and VDI+/- indicators continue on a low volatility path.  TLT is the most interesting of the bunch as it has failed to break the 117 support despite numerous attempts.... and then there's this item that may signal a buying opportunity...as long as the yield curve stays flat.  With recent chatter about 3 possible rate hikes in 2017 a flat yield curve that may not be sustainable and the blip in TLT may only be temporary,,,but for now it looks enticing.

M11 Market Updates...12.22.16

With today's little dip I was surprised at the current status of the M11 momentum and mean reversion models......both have 2 Day Alert warnings.  It's hard to overemphasis  how valuable this tool has been in preserving our hard fought gains ...as per yesterday's warning to avoid new longs in XIV.  Just to be clear...an ALERT crossover signal does not mean sell, it means the short term trend is achanging (to use Bob Dylan's word).
As a further observation please note that the SPY/SH skew chart is at the zero line...indicating good odds for delta neutral positions and a likely momentum surge (however, not clear which direction).
Here's a little nugget from Zero Hedge on why the Santa Claus rally might get derailed this year.

Spoiler Alert on the XIV.....12.21.16

Following on the heels of yesterday's XIV post...we did see XIV up again today per our consensus momentum signal even though the market was red to flat.  However...although we have a renewed buy signal on the XIV note that the 2 Day Alert is at a crossover point....equals hold off on any new positions.  The VIX hit another low today and is now EXTREMELY oversold. It's just a matter of time before we get a reversal and just in case you missed it....there was NO Santa Claus rally last year, which was followed by an ugly January selloff.

VIX versus XIV Perspectives....12.20.16

Below note the current status of the VIX volatility index....hitting 2 year lows..again... and the odds SHOULD favor a bounce which equals a down swoon.
However, the current market is anything but typical and the VIX ETF inverse..the XIV... has been on a tear and continues to look very tradable at least short term.
Below are 3 screen shorts of the current VIX signals:
M1 momentum model, MVP mean reversion model and MVP momentum model.
So why don't we use the VXX ETF for comparison to the VIX rather than the XIV which is inverse to the VIX? The reason is the intrinsic nature of the VXX, which has a built in erosion factor due to its construction and as such it is often not reflective of VIX behavior.
For now the XIV trend is up and the Santa Claus rally (Dec 23 to Jan 1) may goose the markets to ever higher highs before new year tax selling begins.

Ponzo Updates....12.19.16

This week's Ponzo updates have SPY and VIX with forecasts almost identical to last week.  The biggest change in momentum is seen in TLT, which is demonstrating an improved high/low bracket (dotted black s/r lines are from last week)  and the 18 week target is now 125 vs. last week at 122.
Although the yield curve has flattened recently we're still seeing considerable overseas selling of the treasuries and Russia, Saudi Arabia and Chine still retain considerable inventories which, if another selling wave develops, could drop TLT down to 110 levels.  Just something to keep in mind.

VDX Updates and Trader's Outlook...12.17.16

This week's VDX updates have our little focus group in neutral status.  Somewhat unusual. the VDI + and - signals are all at cross over status = big move ahead.,The general market consensus is for a narrow range low volatility VIX with DIA likely hitting 20K before any meaningful pullback.
We're still seeing buy the dip accumulation behavior typical of this time of year and some modest sector rotation into health care.
The financial stocks are demonstrating selective buying and selling as the composite XLF financials sector has flatlined.   TLT is is still struggling to get some traction as the downdraft from massive overseas treasuries selling and the FED's rate hike may produce yet another leg down.
The Trader's Outlook has a mixed signal going forward with a slight bearish bias.

A Surprising Pair.......12.15.16

As I noodle around with finding high probability pair trades to augment my trading (my likely focus for 2017) I found this little gem (McDonalds versus Starbucks) that has performed consistently and with high linearity (92%).  You don't make a lot on each trade (16) but it adds ups over the 6 month analysis period with only 2 tiny losers.
click once on screen shots to enlarge.

FED Hikes, Market Tumbles, TLT Falls Off Ledge...12.14.16

As we warned yesterday, The inevitable FED could push TLT over the ledge, and that's exactly what happened. (SEE BELOW for last 3 hours of the day on 2 minute bars) as TLT plummeted from the R2 pivot all the way down to S2 on huge volume accelerating into the close.  Now we have to see if TLT will rapidly deteriorate down to 100 level support (down another 17%) or whether other instabilities in the markets will draw buyers to the already battered treasuries....and then there's the rising yield curve, which is still upslope.
There's always a danger is trying to catch a falling knife pattern and TLT may prove to be one of the more interesting case studies for market historians.

.chart courtesy of Schwab SS Edge

M11 Books a Double Header and Ponzo Updates...12.13.16

Yesterday's M11 Momentum picks of SPY and XLU booked some nice gains today...redeeming itself from Friday's picks..  Some days are diamonds.....
The Ponzo updates have turned bullish again with the VIX forecast flat (the Black Swan scenario has disappeared) and a bottoming pattern in the Treasuries (TLT) STILL in a confirming mode.....we just have to watch out for TLT falling off its support ledge after the FED rate hike tomorrow.

M11 Market Updated Signals....12.12.16

Waiting on the FOMC and the markets revealed a few cracks today...most notable in the transports and the Russell.  Now historically this is the time of year when the Russell really roars but that may not happen after the recent moonshot pattern of the IWM....which has been parabolic.
Anyhow we had a pause in momentum today.
Here are the current M11 signals...note that the 2 Day stop Alert has not fired on the Momentum model but we were sucker punched on the M11 picks for today.
(Yes we have a new template after some BS "contention" that I owed royalties to a business card company for using their (heavily-edited) non-copyrighted picture...enough said)

VDX Updates and Trader's Outlook...12.10.16

TLT finally fell of its support ledge on Friday and you have to look closely at the VDX chart to realize exactly how far "oversold" TLT has become.  Of course, it can be argued that we are now in a new paradigm of rising yields and hence Treasuries may in fact just need to be repriced to reflect this reality.  When TLT gets down to the 90 level I will definitely be a buyer. Until then the high yield bond ETFs like HYG and JNK show some good odds going forward into 2017.  Eyes on the  FED this week with the FED Fund consensus at 100% that we'll see a rate hike...which is probably already priced into the markets so we may not see the wild roller coaster price action typical of FED days.
Following the VDX updates I've posted an excerpt from the State Street Advisors link posted earlier this week with a description of the Yellen collar.

More New Highs...12.08.16

At this rate SPY is going to hit our 236 target by next week...only 6 months ahead of schedule. With new highs on the NAZ and the DOW transports old time DOW theorists know we are now in a fully formed bull market.  So what could go wrong?  Plenty..but we'll talk about that next week.
Here's an extensive report on the outlook for 2017 from our friends at State Street Advisors.
Meanwhile our EEM model is chugging along a nice low risk path.  Today's strength in the dollar (and crumbling of the Euro) should have derailed this trade but with both the SPY and the VIX green today there's obvious mischief afoot in the algos and this is just another example.

The Juggernaut Rolls on...12.07.16

New highs on modest volume as the algos go nuts mid afternoon.  Symptomatic of underlying instability in the markets the VIX went green in tandem with the SPY surge and VXX also swung from dead red to bright green. Something is clearly out of whack and maybe clearly heads will prevail in Thursday's action.  In case you haven't noticed we are EXTREMELY overbought at these levels but Hey!...who's complaining other than the massive hedge fund short positions.
For now momentum is the place to be per our current M11 market updates.......

Ponzo Updates and SSGA Exclusive...12.06.16

The Ponzo updates this week have the SPY with wildly divergent forecast possibilities.  I note with some amusement that the upside target is 236....virtually identical to the Goldman best case scenario for 2017 and I suspect they got that target from their subscription to the Ponzo service..
Once again bonds look to be in a bottoming pattern but if the FED's do raise rates in December we could see TLT fall off the current support ledge and drop to the 100's.
And we still have that off the charts VIX outlier that suggests a Hindenburg Omen possibility.
Here's an exclusive for Mosaic readers...its quite lengthy but very well argued out and includes actionable trading ideas.

M11 Market Updates and Reading List...12.05.16

Here are the current signals from the momentum and mean reversion versions of the M11 market model.  Note that the performance metrics reflect holding the top 2 raked positions in equal dollar amounts. Momentum is focused on XLF,, which has been on a wild ride up while mean reversion is trying to capture a bond turnaround and a dip play.
Also...note that the mean reversion model has a better linearity and win rate.
Odds for a bond turnaround don't look that good right now.
On the other hand Goldman sees odds for bear case on the upswing.
Going into next year my focus will be more on volatility and the foreign markets and currencies and here's an extensive article on facts and fictions about the Eurodollar/LIBOR connection.

VDX Updates and Trader's Outlook....12.03.16

This week's VDX updates reveal that the markets have moved into a consolidation mode with the net implication that the next move may be dramatic...either up or down.  
Note that SPY and VIX are sitting on a neutral ledge while the VDI+ and - are convergent..
Many of the talking heads are in the bullish camp with S&P outlooks at 2400...about 22% up from current levels.  Considering that the S&P is already trading at a 17% premium to 10 year levels, this is quite a bump and it may not be a smooth ride.
Trader's Outlook is net neutral for next week....historically go-go bullish.

What's Working Now....12.01.16

Another high for the DOW driven by energy and financials while tech hits the skids and bonds and utilities continue to falter. As we seek safe havens of investment the emerging markets ETF..EEM...has been enjoying some success using both the MO2 pair trading platform and the MVP momentum model.  Current returns are shown below.
Gundlach now divines that momentum may be waning as overbought levels in equities and oversold levels in bonds may have been stretched a bit too far.

Click once on image to enlarge.