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=========SWING TRADING SIGNAL, NOT INDICATIVE OF POSITIONS=========
BULLISH SIGNAL ON 8/17
My swing trade signal is fairly BULLISH, but shorter term indicators have topped and some have already become BEARISH. I sold my SPY CALLS for a nice gain on Friday :-), and am in cash for my trading account (Maybe I will buy some SPY PUTS Monday for a several day trade?). I remain in stocks for my 401k at the moment.
S&P500 Volatility (proprietary)
I developed the S&P500 Volatility Index to help characterize the volatility of the S&P500 market. It has nothing to do with $VIX (which shows the market’s expectation of 30-day volatility, constructed using the implied volatilities of a wide range of S&P 500 index options). This indicator serves to rank the volatility of the current market period using market price data from 1990 to 8/9/2016.
Recent trading has been more volatile than 4.3% of all trading periods since 1990.
Zooming in, You can see that the 5 dma is below the 20 dma. My volatility metric has been very subdued of late.
Technicals Model (proprietary)
The first chart below is the cumulative Technicals Model dating back to 2006. The Model was higher today for the 7th day in a row. Here you can see the model performance (in blue vs. SPX in black) all the way back to 2006. The cumulative Technicals Model last made a new All Time High on 1/30/2018, but retreated lower to near its 200ma this past Spring, before beginning a muted recovery.
This next chart shows the daily readings, not cumulative as above. Here you can see which particular trading days are the strongest/weakest technically with the markets as portrayed by the model. Divergences also show up near significant market Tops and Bottoms.
The model is below its 5 dma, and well off the June and July highs. In June the Model accelerated lower at a higher pace than SPX. There are 5 negative divergences, since June, indicating a deteriorating market. Also I continue to track the February lows in the Model as I a test of that level is still possible for SPX.
Orange circles (on top) represent an indicator called a Technicals Thrust. Similar to the Zweig Breadth Thrust, it looks for hard reversals higher. To be a Technicals Thrust, I look for a 0.50 gain within 5 days (with a peak above 0.35).
What is this model? It’s a comprehensive assessment of a good number of technical indicators on each S&P500 stock. This model does 2 things well. First, it shows divergences from SPX price. Most valuable of all, my model has a lot less volatility than SPX price but does a great job of capturing SPX trend, which should do well with forecasting SPX price movements in the future.
HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.
This ratio was rejected at the red resistance line in early August. The recovery here will be watched closely to see if it supports a sustainable run higher in stocks. Thus far is been very lackluster.
I put this chart ahead of the SPX analysis for a reason, its important.
SPX Monthly through July, 2018
On the monthly scale, the market had been expanding since a 2015-2016 consolidation period into this year. Its easy to see Negative Divergences from the end of 2013 and 2014 on ADX DI and MACD histogram. January 2018 made a new All Time High.
ADX: Bullish, trending
Volume: Well above the rising 20 period moving average.
Moving Averages: Close>12>36>72>120 period moving averages
% Bollinger Band: Upper Band
Bollinger Band Width: Declining
MACD: Bullish at a positive value, histogram ticked higher for the 1st month in a row.
There had been negative divergences into early 2018 back to 2013 on the ADX +DI, and MACD histogram in 2016.
ADX: Bullish, trading
RSI: Upper range
Volume: Well below the steadying 20 period moving average.
Moving Averages: Close>20>50>100>200 period moving averages
% Bollinger Band: Upper Band
Bollinger Band Width: Gradually narrowing
MACD: Bullish at a positive value, histogram higher for the 7th week in a row
ADX: Bullish, trading
RSI: Upper range
Volume: Well below the declining 20 period moving average.
Moving Averages: Close>20>50>100>200
% Bollinger Band: Upper band
Bollinger Band Width: Gradually widening
MACD: Bullish at a positive value, histogram higher for the 7th day in a row.
3 of 5 indicators are showing negative divergences at Friday’s highs. Would like to see an early week negative divergence for RSI before being ready to call a reversal.
VIX is on a MACD BUY signal. In early August VIX made a new low since the Spring, which is BULLISH for equities. 4 positive divergences have formed at recent lows, so higher VIX is likely on the horizon.
VIX 15-min Intraday
VIX 15 minute chart had positive divergences on 5 of 5 technical indicators at Friday’s lows. This would support a reversal higher for VIX in the short term.
VIX 442-hr Which Side of Trade?
Traders who prefer to trade one side, should be trading with the BULLS, and continue to watch the blue line in relation to the purple horizontal signal line.
This chart attempts to use a long term average for VIX to identify Bull markets. I use a 442 hour EMA of VIX as that is approximately how many trading hours there are in a quarter of a year. When this value is below 17.5, those who like to trade one side at a time should make sure to be trading the long side. This chart makes no comment about the other times, meaning the inverse is not necessarily true.
High-Low was +37 today. The SPX McClellan Oscillator has been higher 6 of the past 7 days. The SPX A-D line is above its rising 20 EMA, with its ATH made on 8/24/2018. The summation index is in positive range, but topped in July 2016, with negative divergences going back to 2016. New Highs, McClellan and Summation Index have been trending lower for each new high in the market, BEARISH longer term.
More SPX Breadth
More breadth indicators, note the negative divergences since 2016/2017 on many of these. 5 of 5 of these signals are BULLISH.
SPX %above MA
The stochastic indicators have signaled a BUY for 4 of the 5 indicators. Also note all the negative divergences since June, showing weakening market participation.
This chart compares SPX to its Utilities sector. Utilities are a defensive sector so this ratio will drag lower on building fear.
This chart suggests more folks are turning defensive since early June.
This should peak when SPX is high and VIX is low. The ratio indicates that VIX is higher than it should be.
A chart that study’s the stocks in the SPX as if they all had equal weighting.
SPXEW is trailing SPX, a sign that the market has been softening.
Each week I will take a look at the UST10Y-UST2Y, though it will be the daily chart. This chart symbolizes whether the yield curve is supporting economic expansion (by increasing the spread), or providing additional head winds (decreasing). The long and strong positive divergences are in place at recent lows. This level is well below the levels seen in October 2007, and well below when Trump took office.
What’s interesting here, the spread is at 0.21, while recessions since the 1970’s started when the spread was near zero or negative (shown below). If that trend is right, we are a while away from that taking place. You can see the trend is lower over the past several years, but we are currently at a top or consolidating. The bull leg started before the election, as the tide was turning positive for Trump support. Looking at the short term, there has not been a new high or low put in recently, so no divergences to compare to make a prediction.
BUT WAIT…THERE’S MORE ON THE YIELD CURVE
I downloaded US Treasury data (all maturity periods) for every day since 1990. Then I preformed a linear regression on the yields for every maturity period each day and calculated the slope of the linear regression line. This is more robust than merely just subtracting 10Y-2Y as many (including me) do. The resulting graph shows the periods slope were negative in light red. See how nicely they line up with the SPX top in 2000 and just before the 2007 top? Now look from 2009 to present day. The yield slope is quite stable and actually rising! Remember, there are lies, damn lies, and statistics!! We are currently near the best levels since before the 2008-2009 Great Recession!!
Zooming in, I have been tracking the Yield Curve Slope with regard to its 20 dma vs. its 50 dma. Comparing to SPX price action, there is some correlation between 20/50 dma Yield Curve Slope cross, and future market performance. This metric did very well foreshadowing the early 2018 peak and spring 2018 bottom.
Currently see the the Yield Curve Slope has been improving since mid June. The 20 dma is above the 50 dma which means a higher high in the market is still quite possible.
Deflation risk which steadily climbed in spring 2017, jumped in early summer 2017 before going sideways. Thus far in 2018 this ratio declined sharply and then turned sideways.
The bond market Deflation vs. Inflation metric (iShares Barclays 20+ Year Treasury Bond Fund vs. iShares Barclays TIPS Bond Fund). Values early in 2015 and pretty much all of 2016 are showing higher Deflation fears than even 2008-2009.
From this chart you can clearly see when the FED stepped in (when this ratio was nearing 1, except things got out of control at the peak of the 2008 downturn until the FED figured some things out). Clearly things changed since late 2014 and the FED has stepped aside leading to the Deflation fears building beyond the 2008 crisis.
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