SPY MoPonzo Update....01.12.16

This week's SPY Ponzo suggests more volatility to come and a slowly deteriorating market for the near term .  Note that the 2 lowest % error scenarios (yellow and orange) are also the strongest and the weakest mid term outlooks.
The dotted bars up there in the 200s shows where we were the last time we checked. Ouch!

Selecting the Best Odds Paradigm....01.11.16

I keep talking about finding the current best odds paradigm...momentum, short term momentum, mean reversion or delta neutral.
Here's a little study of QQQ showing the current performance status using short term momentum and mean reversion modes.
We look at the 30 day equity curve to help determine out best odds going forward.  This is the equity curve of the model signals, not the the equity curve of the QQQ benchmark buy and hold.
Then we look at the 2 DAY ALERT and the TrendX charts which also relate to the M signal results, not the raw unstopped behavior of QQQ.
If all 3 of these charts show positive slope and the M Equity chart RSQ and P6 are rising then the odds favor continuing in that paradigm mode.
On the other hand,,,,if these 3 performance tracking charts are downslope or neutral then the odds are that mode is not a good choice at the present time.
Side note>  the new M1 platform will be emailed to current M3 users Tuesday after the market close.

SPY &VIX VDX Updates + TLT Ponzo......01.09.16.

A quick look at the SPY and VIX VDX charts suggests its too late to go short but perhaps a bit early to go long with any enthusiasm even though we are currently sitting precisely on technical pivots.  
The TLT PONZO chart on the other hand presents an attractive risk/reward forecast with 4 of 5 best case fits distinctively bullish ....although there is that pesky purple line scenario to be wary of..

M11 Looks at DEFENSE...01.07.16

North Korea, Syria, Iran, Afghanistan and those pesky Soviets....jeez... can't we all just get along?
Not likely. With POTUS trying to disembowel the military and the GOP front runners urging a ramp up what are the prospects for the Defense industry?.
Here's M11's objective spin on the largest defense ETF ...ITA ...and 10 of the largest defense contractors. This is a diverse group of defense providers and each has its own idiosyncrasies. Overall ITA has not done very well both short and longer term but a top #2 ranked sort based on momentum has performed appreciably better.  The limit stops are all set to .7% which may or may not be reasonable given the tendency for jumpy prices in these issues.  Nevertheless this study is intended as a jumping off point for further studies and, as always, we recommend using end of day M11 for opportunity studies and M3 real time for actually managing the positions with pre-close trade executions.

Delta Neutral Bonds....01.06.16

Back to the bonds are boring theme.  Here's the current delta neutral profile of the simple TLT/TBT 20 year treasury bond pair with no 3rd input outlier.  Note the top # is set to 2 and the TBT stop is a multiple of the TLT stop since its a leveraged inverse.
Our DN approach is clearly superior to a TLT buy and hold strategy (dividend adjusted) although we have not factored in trading commissions.
Note that we have opted for the PCL stop value in lieu of the average as it is closer to the mean.  The TBT stop is skewed a bit also since ultras tend to swing wider than their at par counterparts like TLT.

Focus on Volatility....01.05.16

Those who venture into the realm of forecasting and trading volatility are finding it harder and harder to find a quantifiable edge.  That may not be due to the lack of skill on the part of the forecasters but may have more to do with the nature of the tradable volatility instruments themselves.
Here's a link to Bill Luby's observations on the 2015 volatility disaster.  Bill's an old hand at this volatility stuff and is highly regarded in the trading community.  Check out some of his other posts if you really want to get down to the nitty gritty.
Then there's the issue of exactly how these instruments are constructed and this is close to a definitive study of VXX .  The site offers other interesting perspectives and is well worth some time.
To finish off today's volatility ramble here's the latest MoPo of the VIX and the VDX studies of  VIX and VXX..  That purple forecast line on the Ponzo chart should give you a chill.

M3 Format Changes for 2016....01.04.16

We begin the new year with a 400+ point drop in the DOW, continuing the selloff last week and breaking through significant support levels in the major indices.
A huge overnight swoon in the Chinese markets was part of the catalyst and the Euro markets and emerging markets joined in the selling. Today's close will be an important tell for things to come.

For M3 users there are some changes in the new year. The daily pre-close update has been deleted.
M3 users can run their own pre-close update and assess the most promising risk situation.
An ANALYTICS tab has been added that briefly explains each of the M3 platform elements. This tab is designed to complement the USER GUIDE embedded in the M3 platform software.
M3 INSIGHT will be posted weekly (sometimes more often) and be devoted to getting the most out of the M3 platform, analyzing the 4 modes (momentum, short term, mean reversion and delta neutral), determining the current paradigm and the likelihood of its continuation or reversal.
We'll also look at volatility vs. equity setups in M3 and today a case study has been added that looks at the 4 modes of a VXX/XIV pair.  
This is just a starting point for more VXX/XIV studies and, as can be seen from the stop volatility in the 4 panels today, getting actionable and effective values for the stops is job #1 going forward.