Line in the Sand....02.29.16

This week's Ponzo studies for SPY and VIX indicate we are at a most dangerous time. We've been watching the Doom's Day scenario slowly creep up on us and now its here. What's scary is that is virtually all risk iterations the crash scenarios have the lowest error factor. This of course is just one of 5 possible outcomes in the next week but a measure of respect for its implications may be the wise course of action.  Today's painful reversal was not a good omen for the bulls.
By the way...now we have a Saudi crisis to add to the global meltdown.

VDX Updates for SPY, VIX and TLT....02.28.16

This week's updates have neutral levels displayed for equities, volatility and bonds.  That leaves us with only choices going forward...up or down. With earnings behind us the markets will be focused again on geopolitical concerns, chief of which are the threat of Britain's exiting the EU and the danger of Italy once more falling into another debt quagmire.
Current hedge fund positions are increasingly bearish.

M11 Utilities XLU Update.....02.25.16

The M11 XLU top 2 model has proven to be one, if not the best, performing model Mosaic has followed in 2016.  The drawdown metrics continue to be outstanding and even though XLU itself has stalled on several occasions the rotation into the top momentum components has proven a winning strategy.
We're just showing the momentum mode for now but when and if XLU starts to deteriorate then a switch into the mean reversion mode may be prudent and we'll post such developments accordingly.

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Key Reversal Day....02.24.16

SPY plunged right down to our previously stated 190 support level and then promptly reversed from a nervous S3 pivot to finish at R1 ...a 300 point swing.  The M6 is now pointed at QQQ as the best bet (mean reversion mode).  Note the SPY/SH skew is now at the zero line........
Today's action also dramatically highlights the value of trailing stops especially for delta neutral players.
For M1/.M3 owners long term user Little Bill suggests running the M3 MR mode update about 45 minutes after the opening as it often provides an early warning that a trailing stop may be appropriate that day (such was the case today).

Risk Management Still Job #1....02.23.16

Those pesky Brits are threatening to bail from the EU and it rattled the overseas markets overnight and now the US markets in lockstep which are crumbling badly into the close.
A quick check of the M6 model with the beta neutral portfolio shows a distinct divergence in the momentum and mean reversion modes with the current skew favoring the short side (SH).

Mosaic Ponzo Updates for SPY, VIX and TLT.....BEWARE!!!!!!. 02.22.16

I'm sorry to report that the imminent market collapse scenario we saw on the VIX forecast 2 weeks ago and which disappeared last week is now back. What could trigger such a crash?  Well, that's the problem with forecasting the markets. While the probability of such a crash remains low its worth keeping it in the back of your mind.  And, if such a drop does occur it will probably do so quickly on huge volume so keeping an eye on current support levels (SPY 190) is a must and being willing to cut bait if those levels are violated may avert some real pain.
On the other hand, (there's always one of those) the TLT forecast's highest odds scenario (lowest error %) is a modest, steady and short term correction...which should bode well for the bulls..
Next week ushers in the new first day of the month and the possibility for a bullish surge.

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VDX Updates for SPY, TLT and FXI....02.21.16

Last wek's Ponzo forecast of the SPY showed the way in spite of the historical data that suggested the week would be weak. This week may be another story and we are seeing some disintegration of the VDI + and - skew, especially on SPY.  Technically, the markets modestly overbought,,,with a few sector exceptions. We still need China (FXI) pick up more positive volume momentum if we are to see a sustainable recovery, and that's an iffy proposition right now. Despite intraday contractions the 20 year Treasuries (TLT) are maintaining stability (again as forecast by Ponzo) and its difficult to see what might cause a breakdown at these levels.

Bonds Hold Steady....02.18.16

Per yesterday's Ponzo update for TLT the M11 bond screener continues to generate a steady income stream using a top 2 ranked Momentum sorting. Of particular interest is the positive shift in JNK (Junk status bonds), which over the past 2 years has shown a dismal performance.
JNK may well be worth keeping an eye on to verify momentum versus a possible trap door situation otherwise known as a bull trap.

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Ponzo Updates for SPY, VIX and TLT....02.17.16

This week's gander at the market indices offers confirmation of yesterday's analysis of current stop dynamics and suggests waning volatility, a narrow range bond environment and a strengthening equity market.  Of course this could all fall apart in a heartbeat with major terrorist activity or ?.
With earnings season largely behind us the anticipation and potential selling panic of dismal guidance is muted and traders are looking for the next catalyst to drive momentum.
We still have that event horizon crash scenario looming on the SPY just in case you're thinking we were All Clear.
Note that the corresponding crash scenario seen in the VIX update last week has now disappeared.

Signs of Volatility Wane....02.16.16

Kicking off the week the markets are showing encouraging signs ...kind of... What we're missing is decent volume (Friday and today were about 75% par) and the VIX only faded 5% in the face of today's R2+ climb...a bit of a decoupling from expected levels.   The Traders Almanac suggests the rest of this week will be weak to down into options expiration on Friday and we are in fact at overhead resistance, difficult as that may be to believe.
Looking at the limit stop metrics panel for SPY and XLU we see that the current skew favors volatility sustained at current levels.
In the case of SPY all metrics reveal a contracting range and intraday volatility with RSQ downslope and P6 hugging the RSQ.
In the case of XLU we see a divergence between the PCL range and the open/close range, most likely reflecting the extremely overbought levels in utilities and we witnessed the instability of XLU today as it swunbg from + to - to +.

VDX Updates for SPY, XLU, VIX and FXI...02.14.16

We saw a nice rally on Friday but volume was very light and the suspicions are that it was just another short covering driven pop....which was certainty the case for the oil sector.  The day after President' Day is historically bullish for what its worth...then things are likely to get dicey once again as we head into OpEx on Friday.
The VDI +/- skew in SPY is on the verge of turning positive but we've been disappointed before.
XLU is FINALLY showing signs of exhaustion and China (FXI) is showing some potential signs of recovery.  We await the next big thing to drive momentum and are closely tracking the abnormal VIX gyrations as a possible clue for direction.

When Will It End?.....2.11.16

Another day, another 250 point drop. With Monday being a holiday and the markets closed the odds are for more red on Friday so gird your loins and prepare for the worst. We've already broken main support levels and if you look at the China markets (FXI) and Europe (EFA) you'll quickly see the grim state of the global situation. What the catalyst will be that reverses the current slide remains to be seen.
Meanwhile M3 has managed to keep its head above water in both the short term momentum and mean reversion modes although the equity lines are weak to negative suggesting this is not an ideal time to go big.  Note that the 60 day Skew chart reveals that the markets negative bias is in the extreme and it is typically at this level that we should see a momentum reversal. Unfortunately, that should is only a matter of probability and not an absolute.  Better to wait for the actual turn. 

PONZO Updates for SPY and VIX....02.10.16

This week's PONZO updates suggest some possible recovery for SPY and flattening of the VIX range, although not a reduction. So far this year the PONZO has does done a good job of keeping us on the right side of the market bias even though traditional technical analysis indicators have not fared so well.  The elevated volatility levels (VIX at 25+) , increased daily volume and trading wide open to close trading ranges have all contributed to a unstable market where nothing is safe although the utilities and some bonds have had a good run. The lack of follow through days on opening strength is more than worrisome.  The few strong closing days we have witnessed have been reversed strongly and quickly suggesting more short covering action than genuine accumulation.
For now,  cash is the safest position.

M11 Update on the Utilities...-2.09.16

After reviewing M11's take on the bond market yesterday I though it would be a good time to check in on my favorite sector of the year Utilities and see how M11 was performing.
Here then are the Momentum and Mean Reversion screens for XLU and its component holdings as of yesterday's close.
So far the utilities have defied technical barriers as traders and fund seek a save haven.  I've mentioned many times recently that the sector is hugely overbought and its resilience is astounding but it is what it is and until proven otherwise XLU et al look attractive .

The Safety of Bonds...02.08.16

As promised this weekend here's an M11 look at the performance of various bond ETF offerings with SPY as the benchmark.
We'll use a top 2 ranking sort with an across the board .7% limit stop.
Performance results as of Friday's close are shown in both Momentum and Mean Reversion modes.
Regular readers know I favor the simpler the better approach when looking at these screens and just checking the differential drawdowns and linearity of the 2 modes makes a strong argument for the mean reversion mode.
We can also see that junk bonds (JNK) were NOT the place to be for the past 2 years whereas TLT has been the clear leader.

VDX Updates for SPY, VIX, TLT & XLU...02.07.16

This week's VDX updates show little reason for bullish optimism.  XLU continues to climb in price well beyond upper resistance but the VDX shows it is weakening on a buying/selling basic. TLT continues to holds its ground .....again far stronger than the majority of market gurus predicted at this year's onset. We'll run an M11 study of bond ETFs on Monday an attempt to find a trading edge in the fixed income sector.
Note that I have not included volatility bands for the VIX, which can often range 5-10-15% in a single day and which may or not be correlated with price volatility in the SPY

M11 Market Movers Update...02.04.16

While the markets continue to churn and threaten to retake the recent bottom here's a look at the market sectors and how M11 has ranked the momentum and mean reversion top 2 movers.
Both modes have actually done a respectable job of staying ahead of a buy and hold SPY position although some of the momentum mode leaders, especially XLU, are EXTREMELY overbought and the likelihood of a reversal is just a matter of time.

Back to Basics with M3...02.03.16.

Continuing with our current theme of how to navigate this frothy market using the Mosaic tools here's one way to get a market edge.  We use the default M3 input settings SPY, SH and XLU in the momentum mode and then run the model in the top 1, 2 and 3 rankings to generate a comparative view of the current risk environment.
Clearly we have a lot of variation in the risk/reward outcomes but strictly from a linearity of both short and long term equity as well as drawdown perspectives the last strategy ...the all in all the time delta neutral model is worth serious consideration .  We do have to pay attention to the limit stops and, as always, using M1 to analyze each of the the 3 inputs will produce the best stop modeling.
Click once on each panel below to enlarge.

Ponzo Forecasts Level Volatility With One Big IF....02.02.16

This week's SPY and VIX forecasts are not optimistic for the bulls.  We're seeing much the same outlook as last week with added caveat of a new washout signal scenario on the SPY and VIX.
Oil continues to dominate the markets' uncertainty as China has taken on a distinctly avoid at all costs status in the bulk of trader's minds.
Strategically it's one day at a time and in all honesty its difficult to rationalize any big directional positions in this frothy environment as the consequences of a bad move could be huge.
Delta neutral plays have produced good results recently and the risk/reward ratios are much superior to directional trading for now.

XLU Continues to Run...02.01.16

At the beginning of the year I mentioned that XLU was one of my favorite sector ETFs going into 2016 and that it was likely to be a long term winner especially if things got shaky in the majors.
That's turned out to be the case so far and our simple M11 model rotating into the top 2 ranked positions among the XLU components continues to make money regardless of whether we use the short term momentum or mean reversion mode....an unusual situation to say the least.
Today's INSIGHT update focuses on using an examination of volatility range to find high probability mean reversion trades.