Friday Turnaround?....04.30.15

Well, maybe.  The economic news has been a real hodge-podge lately and the technical signals are equally mixed...stocks down, bonds down, dollar down...something's amiss here.  With Friday being the first trading day of the month it SHOULD BE bullish...but its Friday, so the odds are skewed to the downside. the day started out with a glimmer of hope but gradually sank deeper and deeper into the red with SPY and associated indices hitting S3 and below.  The NYAD was truly dismal and there were few buyers of any size to save the day.  There was some recovery the last half hour, perhaps those hoping for a first day of the month pop, but the technical signals as such are still negative.
Then there's the sell in May crowd just looking for an excuse to go to cash so the bulls have their work cut out for them at present.

Chasing Our Tail....04.29.15

The suspected underlying weakness from yesterday's sub-pivot action picked up strength today with many of the big caps getting a heavy hit.  One of the most surprising (and disappointing) developments for some of the "smartest guys in the room" is the plunge in the dollar (UUP), which was on a bull run until recently.....and which is now plummeting with no clear support threshold in sight.  The Euro (FXE) meanwhile was a powerhouse of strength and the new M3 FX model already had it as a #1 pick so we were able to book profits on that move.
The M3 models are once again at odds with one another and the first trading day of the month is unfortunately Friday, which has an inherent bearish skew so the reliability of the technical signals is a complete mishmash.
An interesting aspect of the UUP daily bar chart below (also applies to FXE) is the nice parallel alignment of the Ergodic and ADX indicators....a situation we do not see in the SPY or QQQ.  The immediate implication is that the currencies are actually less subject to HFT manipulation than the indices ETFs.....a thesis that flies in the face of the commonly held assumption that the currencies are more subject to manipulation than stocks or ETFs.

Weaker Than it Looks...04.28.15

We're inching towards the end of the month bull pop but the market's are still in overbought territory and the lukewarm reception to APPLE's whoopee earnings report should serve as a cautionary note.
A check of today's SPY chart shows SPY never got any traction above the pivot and in fact swooned down to S2 within 30 minutes of the open.  As a aside...if you don't believe in the price magnetism of the pivot points...today's price swings should make you reconsider. (the solid yellow line is yesterday's close).
The continued divergence of the ADX and the Ergodic indicator are a further sign that there is no trend in effect right now, just a lot of HFT skimming.
Tomorrow's a FED day...typically bullish and volatile... but the current mixed signals on LM and M3 suggest that not all stars are aligned in the bulls camp at present.

New M3 FX model....04 27.15

This is a model I've been working on for quite some time. It's a spin off of the old M6 Small World model but uses the currency ETFs in lieu of the country ETFs. When the equities markets get squirrelly (like the past 4 months) and it's hard to find a trend this model may provide an alternative investment scenario.  Another nice feature (if you have a Schwab account) it that you can basically trade the model commission free since all the ETFs (except UUP) are in the Schwab One-Source portfolio. (use SCHB in lieu of SPY).
Note the total drawdown stats.  The model uses a .5% daily limit stop across the boards that effectively doubles the longer term returns.

Apple on Monday...04.25.15

With tech at a 15 year high, valuations a standard deviation above the norm and the markets technically overbought we SHOULD be ready for a reversal mode.  The hot results from NFLX, GOOG, AMZN, MSFT, SBUX, etc. have set the excitement bar pretty high and APPLE's Monday report will definitely set the tome for the week.  Expectations are high.
In the meantime here's the VDX and PONZO studies for SPY as of Friday's close>>>
Note that the VDX is NOT at a SELL threshold and PONZO is 60% bullish, short term
Friday's closing action followed the sell the close pattern of the past week, although it was more muted than the previous 4 days.(hopes for APPLE????)
We were able to squeak out two 45 minute trades based on the ADX divergence (below) and we'll delay our discussion of that dynamic until next week when more time permits.

Sell the Close...04.23.15

I'm old so it sometimes takes me extra time to comprehend the obvious.  Thus it was today when a light bulb went off in my head about 15 minutes pre-close. I've been trying to figure the recent open/close dynamics and I finally realized that its really very simple...and understandable.
Traders are simply selling the close in anticipation of after hours and pre-open earnings announcements.  Better safe than sorry as we climb further into overbought territory on extremely tenuous fundamentals.  It's become clear that the big multi-nationals have been hit hard by the dollar's swoon although the dollar now sits on the 50 day moving average and is now on a make or break point.  Nevertheless, with over 25% of the S&P companies having reported earnings less than half have exceeded consensus estimates (five year average is 58%).  The growth rate for revenue for 2015 Q1 was actually a minus number (3.3%).  So how can we be hitting new highs?
Let's blame the HFT algos.....there's considerable evidence to support this thesis.
Below are the 3 minute and daily bar charts for SPY using my favorite Ergodic indicators and the ADX, which I posted about yesterday.  The reason I posted 2 different time frame charts below is to advance the argument that momentum/ADX are both common, periodic, mean reverting and fractal (pattern occurring in multiple time frames).   This is pretty interesting and may be the stepping stone to another way of evaluating the "true" trend of both the short and longer term price moves. Tomorrow I'll continue this line of thinking and examine how we might construct a more holistic trading model using these indicators.

ADX Divergence...04.22.15

Another screwy day for us technical traders as the algos played dirty at the open before rallying in the afternoon session.  With over 150 companies reporting earnings this week you can't blame traders for their rampant uncertainty...as displayed in the wild intraday swings we've seen lately.  In an effort to try and find some transparency (and edge) in this narrow range environment I was looking at how the ADX has reacted to April price action.  The results are shown below and are actually quite illuminating.  The ADX, as most readers probably know, seeks to define when markets are trending, as opposed to consolidating.   Per the linked artcile, ADX readings less than 25 are associated with very weak or non-trending markets.  For the month of April we've seen the ADX steadily erode from 24 to a current value of 11......as price has diverged to the upside.  The net conclusion is that this is a dangerous market, (does that sound familiar?) so my recent focus on containing risk and avoid capital drawdowns may be more understandable.