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Tuesday October 30th, 2018

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Stormchaser80, L.L.C.
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=========SWING TRADING SIGNAL, NOT INDICATIVE OF POSITIONS=========

BEARISH SIGNAL ON 10/23

Here is what I see happening based on the charts below and my Swing Trade/Shorter term indicators:

  • Short term indicators are nearing OVERSOLD, and should support BULLISH action by the end of next week, if not sooner
  • SPX and VIX both appear to need one final low/high to get the right divergent look on all technical indicators
  • BULLISH signs are appearing internally across many metrics, as shown below

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 96.5% of all trading periods since 1990.

Zooming in, You can see that the 5 dma shot well above the 20 dma. My volatility metric is near the 97th percentile!

Technicals Model (proprietary)

The first chart below is the cumulative Technicals Model dating back to 2006. The Model was lower today for the 23rd 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. In a warning, it is now below its 200 dma after a Negative divergence with the market at the previous market top.

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 7 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 SPXLately, a positive divergence may be forming, signaling a reversal higher?

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 Daily

HYG:IEF ratio is a way of looking at Greed vs. Fear in the more sophisticated bond market.

This ratio lost the red support/resistance line after Negative Divergences on all indicators in early October. It ended the week at the lowest level since early July, with no positive divergences to note!

I put this chart ahead of the SPX analysis for a reason, its important.

SPX Monthly through September, 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 that have developed many years ago, and secondary negative divergences formed with August’s All Time Highs.

ADX: Bullish, trending

RSI: Overbought

Candle: Bearish

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: Steady

MACD: Bullish at a positive value, histogram ticked higher for the 2nd month in a row.

SPX Weekly

There had been negative divergences for many years, and secondary negative divergences developed since January with August’s new All Time Highs.

ADX: Bearish, trading

RSI: Lower range

Candle: Bearish

Volume:  Much above the rising 20 period moving average.

Moving Averages: 20>50>Close>100>200 period moving averages

% Bollinger Band: Below the Lower Band

Bollinger Band Width:  Beginning to widen

MACD: Bearish at a positive value, histogram lower for the 5th week in a row

SPX Daily

2 Hindenburg Omens were noted earlier in October. 5 negative divergences in September foreshadowed the drop in October. At today’s lows, 3 positive divergences have developed.

ADX: Bearish, trending

RSI: Lower range

Candle: Neutral

Volume: Above the rising 20 period moving average.

Moving Averages: 50>100>20>200>Close

% Bollinger Band: Lower band

Bollinger Band Width: Widening

MACD: Bearish at a negative value, histogram lower for the 3rd day in a row.

SPX Hourly

5 long and strong positive divergences likely foreshadows a reversal higher next week.

VIX Hourly

VIX is on a MACD BUY signal. Hourly VIX had 3 negative divergences at this week’s highs.

VIX 15-min Intraday

VIX 15 minute chart show no negative divergences at this week’s highs. A new VIX high is likely early next week.

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.

SPX Breadth

High-Low was -79 today. The SPX McClellan Oscillator has been lower for the past 25 days. The SPX A-D line is below its falling 20 EMA, with its ATH made on 9/20/2018. The summation index is in negative range, topped in July 2016, with negative divergences going back to 2016. McClellan and New Lows are positively diverging, BULLISH!

More SPX Breadth

More breadth indicators, note the negative divergences since 2016/2017 on many of these. 5 of 5 of these signals are BEARISH.

SPX %above MA

The stochastic indicators have signaled a SELL for 5 of the 5 indicators. Also note all the negative divergences since June, showing weakening market participation. These indicators are in oversold territory, and making higher lows, so a reversal higher is expected soon!

SPX:SPU (Daily)

This chart compares SPX to its Utilities sector. Utilities are a defensive sector so this ratio will drag lower on building fear.

This chart shows 2 positive divergences at this week’s lows.

SPX:VIX (Daily)

This should peak when SPX is high and VIX is low. The ratio indicates that VIX where it should be. 4 positive divergences were made at this week’s lows.

SPXEW (Daily)

A chart that study’s the stocks in the SPX as if they all had equal weighting.

SPXEW is trailing SPX, a bad sign for the market. 3 positive divergences were made at the recent low.

UST10Y-2Y

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 0.28, 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 surged to near the highest levels since the 2008-2009 Great Recession!

TLT:TIP Daily

%

Deflation risk which steadily climbed in spring 2017, jumped in early summer 2017 before going sideways. This Autumn this ratio was falling hard, supportive of more inflation worries rather than deflation, of late.

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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Tuesday October 30th, 2018

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