Info!! Breadth Volatility Together With Stock Marketplace Cycles

Above is a mensurate that I've been working alongside lately that I telephone band breadth volatility.  The indicator is created past times tracking the per centum of stocks trading higher upward diverse brusk term moving averages as well as and thence calculating the criterion difference of that series.  What nosotros detect is that breadth volatility tends to last depression ahead of bike peaks as well as crests every bit markets make--and rally from--bottoms. Going dorsum to 2012, when breadth volatility has been inwards its highest quartile (greatest volatility of breadth), the side past times side v days inwards SPY bring averaged a gain of +.54%, much greater than the +.10% for all other occasions inwards the sample.

Interestingly, the breadth volatility mensurate shown higher upward correlates entirely .41 alongside VIX going dorsum to 2012.  That's a meaning correlation to last sure, merely suggests that VIX entirely accounts for 16% of the variance inwards breadth volatility.  Indeed, when I've tracked breadth volatility for specific VIX regimes, the predictive results alongside SPY bring been quite good.

As you lot tin meet from the nautical chart above, nosotros made a depression inwards breadth volatility ahead of the recent cost peak inwards stocks as well as straight off bring been trending higher every bit the marketplace position has sold off.  As of yesterday's close, nosotros were non notwithstanding at levels associated alongside intermediate-term marketplace position bottoms.

Further Reading:  Perspectives on Stock Market Breadth
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Info!! Trading Notes For The Calendar Week Of April 25, 2016

Friday, Apr 29th

*  I'll hold upwards talking amongst the Benzinga pre-market prep show at 8:35 AM today.  We'll create got a seem at the psychology of the electrical current market.

*  I beloved this postal service regarding innovating too finding novel merchandise setups from Ivanhoff.

*  Stocks bounced nicely from overnight weakness yesterday but too then stalled at prior peak levels too sold off sharply into the close.  Breadth was non peculiarly poor; fresh monthly novel highs dropped to 915 too novel lows rose a fighting to 235.  Technology/NASDAQ shares broke below their before Apr lows; housing stocks (XHB) also took a hit.  That's non the form of activity you'd await if the marketplace position was pricing inwards economical strength.  Fewer than 50% of SPX shares are trading inwards a higher house their 3, 5, too 10-day moving averages.  Let's encounter if that tin send away convey inwards buyers, equally prior short-term corrections create got been able to do.

*  H5N1 few things dissimilar most this most recent marketplace position drop:  1) higher volatility on the decline, amongst extreme selling on the NYSE TICK measure; 2) the market's inability to rally during USD weakness too commodity firmness; too 3) continued breakdown of correlations amid marketplace position sectors.  It's when nosotros encounter shifts inwards volatility too correlation that nosotros desire to entertain notions of authorities change.

*  My intermediate-term measures are silent nowhere close oversold levels.  I'm quite opened upwards to toppy marketplace position activity hither too an intermediate-term correction inside the bull cycle.  I'm non expecting a precipitous reversal to send marketplace position mode.  Note the precipitous rising inwards VIX.  My Pure VIX model has turned neutral; non yet inwards "fearful" territory.

Thursday, Apr 28th

*  A seem at the recent displace to higher involvement rates, which has affected the trading of higher yielding stocks too stock sectors.

*  Stocks create got fallen dorsum afterward the Bank of Nippon disappointment final night.  We're right away close the lower terminate of the recent trading range.  I haven't noticed item breadth weakness.  Indeed, smaller cap indexes moved to novel highs yesterday, equally did a lay out of large cap sectors.  Much of the index weakness has come upwards from technology scientific discipline shares too the higher yielding sectors.  New monthly highs rose to 1112; novel lows rose a fighting to 209.  My intermediate-term wheel measures are stretched to the upside, however, so I would non hold upwards surprised to encounter farther consolidation.

*  Most of the corrective activity we've seen inwards stocks since the Feb depression has consisted of sector rotation; therefore no meaningful deterioration inwards the breadth numbers.  Below nosotros tin send away encounter a nautical chart of stocks across all the States exchanges making fresh 3-month highs versus 3-month lows.  It has stayed good for yous throughout the recent move.  One of the things I'm tracking going forrad is the grade to which nosotros encounter across the board weakness on pullbacks versus rotational movement. 

Wednesday, Apr 27th

*  Here's a valuable perspective on challenging hedge fund performance from the Mathematical Investor site.

*  My mensurate of breadth volatility has reached depression levels final reached inwards belatedly November, 2015 before the marketplace position drop.  Volume inwards stocks has also been lagging, which has been associated amongst subnormal forrad returns.  That beingness said, breadth improved yesterday, amongst 876 fresh monthly novel highs too 189 novel lows.

*  Note the divergent sector surgery inwards the past times week, amongst higher yielding shares underperforming too commodity-related shares outperforming.  (Graphic from FinViz).  Rates create got been rising ahead of the Fed; I'm keeping a unopen optic on this.  Note also how technology scientific discipline has been lagging.  Rising rates?  Higher commodities?  Low growth?  Can't imagine a stagflation scenario would hold upwards a non bad one...

Tuesday, Apr 26th

*  Excellent interrogation links from Abnormal Returns.  H5N1 non bad aggregation of quant interrogation comes from Quantocracy.  Lots of novel ideas inwards these sources too lots of practiced blogs to follow.

*  So far my trading experiment has been interesting.  I've been placing far fewer trades, solely trading when the marketplace position lines upwards on 3 fourth dimension frames too a short-term signal is triggered.  The signal comes from volatility bands drawn around lawsuit bars, so the bands reverberate what I've been calling pure volatility (volatility per unit of measurement of marketplace position volume).  The target is also based upon a motility inwards pure volatility units.  The really structured nature of the opportunity taking has led to zilch overtrading too a higher hitting charge per unit of measurement on trades.  I'm placing solely a 10th of the trades I was placing before, overall profitability inwards dollar price has non been hurt, too of course of educational activity risk-adjusted profitability has increased greatly.  It is non clear to me that much of the trading nosotros produce adds value.  By structuring rules around our best trades, nosotros tin send away create important gratis fourth dimension for interrogation too life exterior of markets.

*  We saw increased selling push clit per unit of measurement area inwards yesterday's trade, but cost held relatively good too has bounced a fighting inwards overnight trade.  New monthly highs dropped to 586 too monthly lows also dipped to 208.  I'm silent non seeing important weakness across sectors; the key banking company focus the balance of the calendar week volition dominate trade.  

*  We tin send away encounter the market's forcefulness inwards the wheel mensurate below.  My long-term wheel interrogation suggests that nosotros made an of import wheel depression inwards Feb (the prior wheel depression was October, 2014) too create got been inwards a momentum stage of the novel cycle.  I ultimately await the electrical current wheel to create got us to novel highs, driven equally much past times dovish key banks too the postulate for yield equally growth per se.

Monday, Apr 25th

*  There is a psychological procedure that underlies self-confidence--and to a greater extent than specifically a cognitive process.  Key is the recognition is that confidence is an seem of optimism--and optimism comes from finding structural similarities betwixt introduce challenges too past times ones that create got been mastered.  This is really relevant to the capacity to stick amongst one's ideas too atmospheric condition drawdowns.

*  I'm currently working on a projection that tracks long-term cycles inwards the stock market.  These cycles extend for months, non minutes or days.  It is at this horizon that momentum effects most clearly emerge.  For example, if nosotros larn dorsum to 2006 too rails the per centum of SPX shares that unopen inwards a higher house their 100-day moving averages, nosotros notice that the move past times one-half of readings (those inwards which in that location has been strongest breadth) final result inwards an average side past times side 50-day gain of +2.15%.  The bottom one-half of readings average a side past times side 50-day gain of solely +.33%.  The lion's part of the surgery differential occurs afterward a 20-day belongings period.  Think most what that agency for traders who prepare longer-term ideas but create got to merchandise them on curt fourth dimension frames too what that agency for short-term traders.  Also recollect most the implications for the electrical current market.

*  Stocks create got pulled dorsum inwards overnight trading, continuing to consolidate recent gains.  None of my breadth measures propose that we're yet at an oversold level, equally tin send away hold upwards seen below.  This mensurate tracks SPX shares trading inwards a higher house their 3, 5, 10, too 20-day moving averages.  (Raw information from Index Indicators).

Info!! Trading Notes: Calendar Week Of 8/10/2015

Friday, August 14th

*  For me, the standout observation for today's merchandise is that the yuan stabilized at the overnight fix, nosotros got a little popular inwards stocks, in addition to thus at that spot has been no follow through and, equally I write, that little popular has been alone reversed.  Meanwhile petroleum in addition to copper buy the farm on to languish close their recent lows.  The quest for devaluation inwards Communist People's Republic of China is a answer to economical weakness in addition to perchance the best real-time approximate of that weakness is inwards commodities pricing.  I create got problem seeing whatever sustained bull displace inwards stocks until the deflationary pressures reflected past times commodities weakness abate.

* 

*  My diverse breadth measures create got been peaking and, recently, bounces inwards stock marketplace seat breadth create got non been sufficient to elevator the index to novel highs (see nautical chart of Intermediate Strength above).  I'm content, given the dynamics above, to create got a little swing seat for a displace to oversold levels. The models are neutral, in addition to it would non create got a huge amount of weakness to plow them bullish, thus at this juncture I'm non anticipating a full-on deport marketplace seat move.  Too, equally the higher upwards nautical chart shows, we've seen a drying upwards of the set out of stocks making fresh lows.  Should nosotros larn near-term cost weakness in addition to fewer stocks making novel lows, I volition role that equally a tactical chance to create got profits.  If the weakness hypothesis is correct, nosotros should non create got out the overnight highs inwards today's trading session.  With models non lined up, I'm happy to create got a relatively brusk leash for seat trades.

*  The breadth volatility mensurate referenced yesterday is at the lowest levels seen since piece of cake February/early March.  Such depression levels create got been associated alongside weak returns over a adjacent five-day basis.  Pure volatility has likewise moved below median levels, likewise associated alongside weak forrad returns over a swing basis. 


Thursday, August 13th

*  Yesterday's banker's complaint nearly caution chasing oversold levels when pure volatility is high turned out to last to a greater extent than right than I expected, equally nosotros reversed the recent weakness in addition to rallied strongly inwards SPX.  We dropped all the way below 2050 inwards the ES futures early on inwards the day, a two-week low.  Interestingly, nosotros only saw 1058 stocks across all exchanges brand fresh monthly lows vs. 1078 on 8/6 in addition to 1862 on 7/27.  Note a set out of sectors that held upwards alongside relative strength, including the yield-sensitive utilities in addition to consumer staples shares.  The commodity-related stocks create got likewise held up.  This told us that the early on driblet was to a greater extent than nearly sector rotation than full-on risk-off--a valuable tell.  Market breadth has non been weakening alongside the recent Communist People's Republic of China related selloff.

*  Pure volatility remains unusually elevated fifty-fifty alongside yesterday's rebound; when this occurs, at that spot is unremarkably to a greater extent than upside left inwards the move, equally the combination of volatility in addition to forcefulness leads to near-term momentum.

*  The 3-5 hateful solar daytime models are mixed:  i is neutral, the other mildly bearish.  The adjacent hateful solar daytime model is neutral.  These are the kinds of signals yous buy the farm far the middle of trading ranges.  I could last persuaded to purchase intraday weakness that holds higher upwards the overnight lows for a short-term merchandise higher based on the potent pure volatility, but otherwise don't perceive a potent edge.

*  My breadth volatility mensurate is hitting multi-week lows.  That's a mensurate of the volatility of hateful solar daytime to hateful solar daytime breadth in addition to it's been a helpful measure.  When breadth volatility has been inwards the lowest one-half of its distribution since 2014, the adjacent 5 days inwards SPY create got averaged a loss of -.01%.  When inwards the highest one-half of its distribution, the adjacent 5 days inwards SPY create got averaged a gain of +.34%.  If nosotros were to larn other volatility readings dropping, the models would probable plow bearish.


Wednesday, August 12th

*  Communist People's Republic of China devaluation continues equally major driver of stocks globally.  While developed marketplace seat equities create got traded inwards a arrive at over the past times several months, emerging marketplace seat stocks create got been inwards a consistent downtrend (see EEM nautical chart above).  This suggests that a major engine of recent global economical increment is no longer a contributing factor.  It is this weakness in addition to non the stimulus value of the weaker Asian currencies that is driving stock in addition to commodity markets lower in addition to stimulating a flying to the security of character yield.

*  The 3-5 hateful solar daytime models for SPX are neutral; the adjacent hateful solar daytime model ended Tuesday real modestly bullish.  The models cannot component inwards idiosyncratic marketplace seat factors such equally the devaluation, thus I am non relying upon them for signals at this time.  Sometimes this fourth dimension actually is different.

*  My mensurate of "pure volatility"--the average cost displace per unit of measurement of trading volume--has buy the farm elevated, which way that nosotros could encounter outsized moves (including countertrend ones) equally book picks up.  This has of import implications for the setting of stops in addition to targets on trades in addition to makes it peculiarly unsafe to chase overbought or oversold cost levels.

*  General game invention is to buy the farm on to sell bounces inwards SPX that terminate at lower highs.  If the devaluation genuinely is contributing to an ongoing risk-off trade, nosotros should non merchandise higher upwards the levels seen merely prior to the most recent yuan fix.  I buy the farm on to harbor doubts nearly whatever form of sustained Fed hiking inwards the human face upwards of what is increasingly looking similar a currency state of war of competitive devaluations.  

Tuesday, August 11th

*  Communist People's Republic of China devaluation primal slice of overnight news; USD rises vs. Asia; stocks hand dorsum a chunk of Monday's gains.  Communist People's Republic of China devaluation affirms regime describe of piece of job organisation over economical weakness.  Difficult to encounter much inwards the way of Fed hiking alongside Asian goods becoming cheaper inwards U.S. in addition to dampening inflation.  Also hard to encounter Fed hiking inwards whatever sustained way inwards the human face upwards of what is increasingly looking similar a currency war.  All inwards all, this is consistent alongside the macro themes of late outlined in addition to should last supportive of U.S. stocks offering yield.  Economic benefits of lower inflation/lower prices are tempered past times headwinds from higher USD.

*  My 3-5 hateful solar daytime models for SPX turned modestly bearish at cease of hateful solar daytime on Monday, but reaction to the Communist People's Republic of China intelligence swamps model effects.  Next hateful solar daytime model for SPX turned from modestly bullish to neutral.  

*  General game invention is to sell bounces inwards SPX that neglect to create got out Mon highs.  Commodity markets create got been a adept proxy for the Asia weakness theme, in addition to it is hard to encounter stocks sustaining a rally if that subject is dominant.

Info!! Trading Notes For The Calendar Week Of April 18, 2016

Friday, Apr 22nd

*  Excellent shipping service from Jesse Felder questioning the wealth lawsuit from recent key banking concern policy.

*  Stocks pulled dorsum inward Thursday's trade, amongst fewer than 50% of SPX shares closing inward a higher house their three in addition to 5-day moving averages.  Despite the pullback, fifty-fifty my shorter-term measures stay inward overbought territory, as seen below:

*  Note how the pullback inward bond prices (rise inward yield) was accompanied past times drops amidst consumer staples (XLP), utility (XLU), in addition to existent estate shares (IYR).  Because these sectors offering enhanced yield in addition to because authorities bonds offering in addition to thence piddling yield, charge per unit of measurement views are playing out inward these stock sectors.  This is a real relevant dynamic for traders/investors.

*  Retail (XRT) in addition to technology scientific discipline (XLK) shares receive got been underperformers lately; much of the recent strength has come upwards from commodity related sectors (XLB, XLE, XME).  Strong commodities (DBC) are unopen to other macro subject playing out inside stock sectors; the relative surgery of stock sectors has been of import lately...it's non precisely risk-on, risk-off across all sectors.

*  China underperforming recently amidst concerns almost credit defaults.  On the radar...


Thursday, Apr 21st

*  Rob Hanna shares historical marketplace patterns on the Quantifiable Edges blog.  Also cheque out Rob's operate amongst Scott Andrews on the InvestiQuant blog.  Lots of proficient ideas here.

*  Stocks continued their deed higher on continued positive breadth.  Across all exchanges, nosotros had 1205 stocks brand fresh monthly highs against 192 lows.  As noted earlier, it's the absence of distinctive weakness inward whatever of the sectors that is noteworthy inward the recent marketplace strength.

*  Here's a valuable perspective on furnish in addition to need inward the States of America stock market.  It's a 10-day moving average of upticks versus downticks amidst all NYSE shares.  Note that, since the Feb lows, that average has never dipped below zero.  Most late this strength has been due to the depression grade of downticks; quite simply, nosotros are non seeing sustained selling from institutions in addition to this has kept stocks aloft.

  *  Here's a await at what's been relatively rigid in addition to weak amidst stock sectors from the FinViz site.  Note the odd strength amidst commodity related shares--a consummate reversal of the weakness nosotros saw early on inward the twelvemonth in addition to through a proficient chunk of 2015.  Renewed strength amidst commodities has been the clearest indication that markets are no longer pricing inward deflationary forces in addition to that's been proficient for global stocks.

Wednesday, Apr 20th

*  Looking for a sketch pad for quantified patterns inward stocks in addition to ETFs?  Great screener on Kora Reddy's Paststat site.

*  Stocks moved to novel highs for this run, amongst significantly expanded breadth.  Across all exchanges, stocks making fresh three calendar month highs vaulted to a novel peak.  (See below).  The full general dominion is that peaks inward breadth/momentum tend to precede cost peaks for bull cycles.  While breadth is stretched here--and indeed we've pulled dorsum inward overnight trade--we proceed to consider dips at successively higher cost lows, which is what makes for bull moves.

*  Influenza A virus subtype H5N1 different agency of looking at breadth tracks the divulge of NYSE stocks giving purchase versus sell signals across a diversity of technical trading systems.  I hold those stats as a cumulative running total, which has also displayed odd strength inward recent sessions.  (See below).  What is as noteworthy is that few shares are giving sell signals, which is a reflection of the depression grade of selling pressure level evident inward the upticks/downticks data.  Bottom line, I'm non seeing signs of deterioration inward this marketplace at the introduce time.

*  Note also the breakout strength amidst international equity indexes (EFA).  We've seen broadening international strength inward stocks as the States of America dollar has weakened. 



Tuesday, Apr 19th 

*  Limited notes side past times side few days;  working amongst traders inward London. 

*  Breadth continues strong,  with over one k fresh monthly highs in addition to over 80% of SPX stocks closing inward a higher house their 3, 5, in addition to 10 twenty-four hours moving averages. 

*  The stair out of upticks in addition to downticks continues to present unusually depression selling pressure. Stocks are unlikely to sustain weakness if institutional participants are non selling. 


Monday, Apr 18th

*  One of the greatest life risks nosotros take is playing it safe.  Life is also of import to live on wasted on inconsequential goals.

*  Recently the striking charge per unit of measurement on my trades has gone up.  That's because I'm non *trading*.  I am entering positions similar an investor in addition to exiting similar a trader.  Waiting for things to work upwards across different fourth dimension frames provides the proficient entry.  Defining a pregnant deed for a given volatility regime in addition to exiting when that is achieved provides the proficient exit.  Slow to instruct into trades, quick to instruct out when the marketplace gives proficient prices.  Perhaps the border inward such a method lies inward making *not trading* the default.  All I tin laissez passer on the axe say is that my involvement inward markets has redoubled always since I got away from screens.  Frequent trading is similar frequent eating: naught could live on worse for the palate, stomach, in addition to appetite!

*  Stocks opened the weekend lower on the heels of the inability of the OPEC coming together to attain an understanding over production cuts.  Since the early on trade, stone oil in addition to stocks receive got rebounded a bit; I'll live on watching the correlation betwixt stone oil in addition to stocks to consider if nosotros re-enter the regime that was bearish for both, as good as for high yield bonds.  Influenza A virus subtype H5N1 resumption of a rigid dollar merchandise would fuel such a regime; inward the absence of the dollar trade, the correlation betwixt stone oil in addition to stocks may live on less certain.

*  Breadth dipped on Friday, amongst 795 stocks making fresh monthly highs in addition to 137 registering novel lows.  My volatility measures receive got striking depression levels that receive got been associated amongst marketplace tops, including the "pure volatility" stair out that tracks the average volatility per unit of measurement of trading volume.  So far, nosotros haven't seen a pregnant expansion of selling pressure level inward the uptick/downtick stair out or inward the novel lows data; I'm watching those closely.  My "pure correlation" measure, tracking the correlation amidst stocks specific to given volatility regimes, also is at (low) levels historically associated amongst subnormal forwards returns over a several calendar week period.

*  My stair out of intermediate term strength, assessing novel highs versus lows across all SPX shares, has fallen toward neutral levels fifty-fifty as cost has moved higher.  While a few measures await toppy, it would surprise me if this bull deed were to all of a precipitous morph into a bear.  

Info!! Trading Notes For The Calendar Week Of March 21, 2016

Friday, March 25th

*  Perhaps the most mutual psychological challenge I listen from traders is how to maintain a positive mindset during periods of drawdown.  It's rattling hard to lose coin for a stretch of fourth dimension when you're pouring your pump together with best efforts into markets.  But at that spot is no surer agency of missing opportunities than becoming self-focused together with negatively focused.  This recent article focuses on how nosotros tin sustain well-being together with a positive mindset fifty-fifty when everything seems to hold out going wrong.

*  Stocks bounced from their short-term oversold province of affairs noted yesterday amongst the swing overbought/oversold measure. I am watching breadth closely here, every bit it would non surprise me to run across a to a greater extent than selective stage of the marketplace wheel going forward.  The relative functioning of little caps is of item interest. 

*  I'm seeing increasing utter of straight monetary stimulus to economies.  I suspect this volition hold out actively considered if nosotros larn a renewed deterioration of fiscal weather together with concerns re: deflation.  The implications for asset prices (weak currencies, rigid commodities) would hold out significant.

*  I've been putting considerable function into a gear upward of swing measures that rail overbought/oversold weather together with volatility.  These are based on trial time, where each bar represents an amount of book or toll drive inwards the market, non a unit of measurement of chronological time.  The OBOS mensurate captures momentum together with value effects on a swing basis:  swing returns inwards ES convey been best when we're significantly overbought (+.54%) together with significantly oversold (+.49%).  Returns convey been subnormal betwixt these extremes (-.05%).  Although I bespeak to maintain the specifics of the mensurate proprietary together with express to the managers I function with, I'll happily update periodically on this blog.  Swing returns from electrical flow levels of OBOS together with vol convey non been significantly positive or negative.

*  Here is a swing volatility mensurate that looks at the volatility of the trial bars.  Note how we're close levels that convey lately corresponded to marketplace peaks.  This is yet roughly other argue I'm watching breadth closely.

Thursday, March 24th

*  Thanks to Aaron Fifield for interviewing me for the Chat With Traders podcast.  We demeanour on a set out of topics relevant to factors that brand for trading success.  He's assembled an first-class lineup of interviews worth checking out.

*  We've seen a recent pullback inwards stocks together with oil; yesterday's closed saw an expanded set out of stocks making novel lows amidst relative weakness amid little caps.  I volition hold out tracking breadth closely here, every bit nosotros mightiness hold out seeing a to a greater extent than selective stage of the recent marketplace strength.  Below is a nautical chart of stocks across all exchanges making fresh 3-month highs vs. lows:

*  I've been exploring a swing overbought/oversold mensurate based on trial bars.  As you lot tin see, we've lately entered oversold territory.  As long every bit these swing lows are occurring at successive toll highs, I'm willing to give the produce goodness of the doubtfulness to the bulls.  The nautical chart tracks the mensurate through the recent motion higher.

Wednesday, March 23rd

*  We saw an early on selloff due to the Brussels news, precisely this was bought relatively early on inwards the NY session.  It's a skillful trial of how, inwards a momentum environment, participants desire to larn long fifty-fifty on relatively little dips.  That beingness said, my breadth volatility measures (volatility of daily breadth numbers) has been coming downwardly together with that has led to subnormal returns over the near-term horizon.

*  Interestingly, we're hovering close our highs, precisely yesterday saw alone nigh 40% of SPX stocks trading inwards a higher house their 3-day moving averages.  During these momentum periods, corrections tend to hold out rotational together with we're seeing roughly of that.  Housing, financials, consumer staples, utilities--all convey been off their highs recently.  Technology has been stronger.

*  My wheel mensurate continues inwards elevated territory, in 1 trial to a greater extent than dissimilar much of what nosotros saw inwards 2015, where push clit led to weakness.  That continued elevation on a shorter-term wheel mensurate suggests that a longer-term wheel is at play together with that this has been to a greater extent than than a bounce inwards a demeanour market.

Tuesday, March 22nd

*  We're seeing roughly consolidation overnight next a little upward twenty-four hr catamenia yesterday.  While SPX closed higher, nosotros returned to underperformance of little caps together with the set out of stocks across all exchanges making novel monthly highs dropped from 1660 to 886.  New monthly lows likewise dropped, however, every bit we're soundless non seeing distinctive weakness inwards whatsoever sector.  Volume together with volatility dropped; VIX is forthwith below 14.  More on volatility below.

*  Below is a short-term mensurate of the set out of SPX stocks making fresh 5, 20, together with 100-day highs versus lows.  Notice how nosotros convey stayed elevated for a set out of consecutive days together with how this is different from what nosotros saw through much of 2015.  Whereas "overbought" readings were opportunities to sell concluding year, then far inwards this rising we're seeing momentum together with push clit leading to farther strength--one of the signature characteristics of a fresh marketplace cycle.

*  Despite the market's push clit together with momentum, the rally has non had a lot of fans.  I honour on the Stock Twits site, for example, that messages regarding SPY are 40% bullish, 60% bearish.  That ratio hasn't changed much during the concluding 2 weeks of gains.  I likewise honour that shares outstanding for the SPY ETF convey in 1 trial once to a greater extent than dipped, forthwith dropping below their levels from 5, 10, together with 20 days ago.  Very interestingly, the set out of shares outstanding for SPY has dropped over the course of pedagogy of the rally from mid-February.  Share redemption has to a greater extent than oftentimes than non been associated amongst superior returns over a multi-week horizon.

*  As mentioned above, volatility has dropped over the course of pedagogy of this marketplace rally.  Equally notably, my pure volatility mensurate (volatility per unit of measurement of trading book for the ES futures) has dropped significantly (see below) together with is getting to levels that convey been seen at recent marketplace highs.  I am rattling opened upward to the possibility that we're going into a different stage of the marketplace wheel where we'll run across lower volume, less drive per unit of measurement of volume, together with to a greater extent than of a grinding trade.  For traders accustomed to the drive that nosotros saw for the starting fourth dimension duet of months of this year, that transition to a depression vol authorities tin hold out challenging, requiring a fresh approach to setting targets, stops, together with asset periods.

Monday, March 21st

*  So often, inwards our trading goals, it's gear upward together with forget.  We gear upward goals, precisely oftentimes neglect to follow through.  This article draws upon recent research to position how tin nosotros transcend away to a greater extent than productive--better at pursuing together with reaching the goals that nosotros define.

*  Stocks closed higher overall on Friday, together with we're forthwith seeing over 90% of SPX shares trading inwards a higher house their 20- together with 50-day moving averages.  That is odd push clit off the Feb lows.  My mensurate of upticks versus downticks amid NYSE stocks (NYSE TICK) showed corporation push clit on Fed twenty-four hr catamenia and, every bit the nautical chart below shows, has been inwards an uptrend on a cumulative basis, eclipsing its previous high.  I believe we're pricing inwards a to a greater extent than favorable surroundings for equities, given QE overseas together with a moderating Fed.

*  Yet roughly other agency of tracking the push clit together with weakness of shares is to await at each stock on the NYSE together with run across if it has closed inwards a higher house or below its Bollinger Bands.  (Raw information from Stock Charts).  As the nautical chart below shows, nosotros convey reversed the blueprint of internet weakness from 2015 together with early on 2016 together with convey been persistently inwards a higher house the naught line of piece of job inwards recent days.  Bottom line, I'm non seeing the sort of deterioration that would ordinarily precede a major marketplace reversal.

*  H5N1 spell dorsum I mentioned the shares outstanding inwards the SPY ETF every bit a useful thought approximate together with noted that it had been flashing bearish sentiment, fifty-fifty afterwards the liftoff from the Feb lows.  Sure enough, history repeated together with nosotros continued higher.  Now we're seeing an expansion inwards shares outstanding (net bullish sentiment).  In the by that has led to subnormal returns for SPY.
   

Info!! How Worried Are Investors Near This Stock Market?

There are many ways of measurement investor as well as trader persuasion almost the stock market:  put-call ratios, surveys, measures of breadth, etc.  One interesting stair out is to come across how actively people behavior searches on a topic via Google.  It turns out that a stair out of worry almost marketplace position related topics can last an effective predictor of prices.  Above, nosotros come across the nautical chart for searches conducted on the topic of "bear market", equally captured via Google Trends. 

Notice the spikes inward searches laid out inward January, 2008, earlier the worst of the behavior marketplace position had taken hold.  We likewise come across smaller spikes inward August through Oct of 2011 as well as withal smaller ones inward April-June of 2013, as well as this calendar month then far.  As the stock marketplace position has leave of absence less volatile since the GFC, nosotros come across lower volatility inward the fourth dimension serial of searches for "bear market".  Note Google's extrapolation to forecast search activeness for 2015:  it likewise remains tame.

While nosotros direct maintain a blip higher inward behavior marketplace position searches, those are then far nowhere close equally high equally the searches inward 2011 as well as for sure non equally pervasive equally inward 2008.  Investors are non just complacent:  October's search grade is 24--higher than whatever other calendar month of 2014--and the calendar month is entirely one-half over.  Still, the grade of bearishness yesteryear this stair out is consistent therefore far amongst what would last seen inward a bull marketplace position correction, non an outright behavior market. 

Further Reading:  Equity Put-Call Ratio
.

Info!! Assessing Positioning Inward The Market: A Mensurate Of Pure Sentiment

Traders are frequently concerned that their ideas mightiness neglect only because they convey kicking the bucket "too consensus".  That is, if many other participants are positioned inwards the same idea, the risk/reward may kicking the bucket negatively skewed.  There aren't many traders left to displace the seat farther inwards the desired direction and, should prices get-go to displace the other way, at that spot tin last a stampede for the exits apace putting positions nether water.

Sentiment inwards the stock marketplace is ane means of gauging marketplace psychology too whether at that spot may last a bullish or bearish consensus.  Unfortunately, the criterion stair out for assessing sentiment, the put/call ratio, has several weaknesses.  First, it frequently mixes together set too telephone telephone trading for stock index options too for the options on private equities.  My locomote shows those are unlike distributions, amongst unlike impacts on markets.  The equity-only put/call measure, where options across all exchanges too all listed issues are included, has been the best stair out for sentiment.  Influenza A virus subtype H5N1 minute work amongst the criterion put/call ratio is that it is itself impacted past times past cost motility too volatility.  When markets rise, the ratio tends to refuse too vice versa.

The pure persuasion stair out I created is akin to the pure volatility measure, which adjusts implied volatility for the amount of realized volatility too past times cost movement.  Pure volatility hence tells us how much motility is existence priced into options for a given amount of recent motility too realized volatility.  In other words, it shows us how VIX may last under-reacting or overreacting to recent cost behavior.  Similarly, pure persuasion adjusts the put/call ratio for recent cost motility too volatility.  The pure persuasion stair out (shown above) tells us when nosotros are "too" bullish or "too" bearish, given recent cost behavior.

Interestingly, going dorsum to 2014, pure persuasion has been a decent well-nigh term predictor of stock index prices--so much then that I added it to the ensemble model late described.  By a uncomplicated median split, when pure persuasion has been high (too bearish for the amount of marketplace motility we've seen), the adjacent 10 days inwards SPX convey averaged a attain of +.71%.  When pure persuasion has been likewise depression (too bullish for the amount of recent marketplace movement), the adjacent 10 days inwards SPX convey averaged a loss of  -.17%.  The numbers stand upward out fifty-fifty to a greater extent than at the extremes.

Notice how, inwards the recent market, we've had quite a few high readings inwards pure sentiment.  (Friday unopen bullish on the pure persuasion measure; the overall ensemble model unopen at a apartment 0).  We've seen weakening breadth inwards stocks too many participants convey been anticipating a marketplace top, but prices convey tended to bounce higher later we've seen selling.  The bearish sentiment/positioning may convey something to produce amongst that.  It's a facet of the marketplace I'll last tracking closely inwards coming days.

Many, many marketplace indicators tin last improved past times looking at whether too how they anticipate forrad cost motility in ane lawsuit correlated marketplace factors are removed.  It doesn't assistance to expect at 12 unlike marketplace indicators if they all are significantly correlated.  When nosotros take the correlations, nosotros come upward closer to measurement the truthful factors that displace stock prices.

Further Reading:  Pure Volatility
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Info!! Is This Stock Marketplace Rally Gear Upwards To Gyre Over?

Recent looks at breadth too sentiment too the pull of the marketplace rally suggested that the electrical flow displace higher inwards the U.S. stock marketplace was different recent ones, with meaning upside momentum.  So far, that has proven to last the case.  Let's forthwith update the view.

First, however, a quick review of basics:  Market cycles typically stimulate down with a liftoff from lows on real rigid breadth too momentum.  As the upward stage of the cycle matures, nosotros stimulate down to encounter increasing differentiation with stock sectors, with the strongest continuing higher too the weaker ones diverging.  During this maturation, volumes tend to drib and, with them both volatility too correlation.  During the to a greater extent than mature phases of a cycle, the intensity of buying pull per unit of measurement area wanes, but selling pull per unit of measurement area also remains low.  It is when selling pull per unit of measurement area picks upwards that nosotros stimulate down an actual downwards stage to the cycle.

One of the ways I runway the cyberspace buying too selling activity inwards the stock marketplace is through the cumulative upticking vs. downticking of a broad diversity of shares.  You tin give the sack intend of this equally an instantaneous advance-decline line, where every transaction across every stock is counted equally a purchase (uptick) or sell (downtick).  When the cumulative business moves steadily higher, nosotros convey rigid cyberspace buying interest.  When it flattens out, nosotros know that a greater residual of buying too selling is present.

Please authorities annotation that the chore of a trader is non to shill for the bull or comport side of the market.  Rather, the trader's chore is to accurately assess what the marketplace is doing forthwith too conform to the surroundings that is presented.  Grounding a see of the surroundings inwards a broad diversity of information is a agency of staying cognitively too emotionally grounded too avoiding, equally much equally possible, biases inwards one's desires for upward or downward movement.  Some of the best tools for trading psychology are tools for accurate marketplace analysis.

The top 3 charts stand upwards for the cumulative upticking vs. downticking for all NYSE shares (top chart); all U.S. stocks traded on major too regional exchanges (second chart); too the Dow thirty stocks (third chart).  (Data obtained from e-Signal).  This gives us 3 perspectives, from the large caps (Dow stocks) to the broad marketplace (NYSE stocks) to the entire stock universe (U.S. stocks).  Note that all 3 display a notable sudden upward trajectory from the Oct lows.  Quite simply, buying involvement has consistently outweighed selling interest, too that has non abated.  From that perspective, the rally is quite intact.

Does that hateful all is rosy inwards the stock universe?  Not quite.  As the bottom nautical chart illustrates, fewer shares convey been closing to a higher house their upper Bollinger Bands equally we've moved higher recently.  Similarly, fewer shares convey been registering fresh novel highs vs. lows.  For example, nosotros unopen at a novel high on Thursday, but alone 897 mutual stocks across all exchanges registered fresh monthly highs.  Just a few days earlier, on Oct 31st, nosotros rang upwards 1975 novel monthly highs.  We're exactly starting to encounter to a greater extent than or less divergences inwards the upside activity of stocks, with Russell too NASDAQ shares lagging the SPX of late.

Such divergences tin give the sack proceed for a spell during the maturation stage of a marketplace cycle, then I don't hold off whatever novel comport leg inwards the immediate future.  It is when nosotros encounter cumulative selling involvement offset to equal too laissez passer on buying pull per unit of measurement area that nosotros know that a cycle is getting long inwards the tooth.  The top 2 charts illustrate that quite nicely during the September topping.  Nothing similar that is happening quite yet, but nosotros are seeing glimmers of differentiation inwards the patterning of marketplace strength.

Further Reading:  Measuring Buying too Selling Power inwards the Stock Market
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Info!! Trading Notes For The Calendar Week Of March 28, 2016

Friday, Apr 1st

*  Top twenty people to follow on Stock Twits as well as Twitter for corking marketplace position content.  Of course, Ivaylo is besides pocket-size to include himself, hence I'll nominate him hither both for his spider web log content as well as his books. 

*  We've pulled dorsum from recent highs, equally my measures of realized resultant fourth dimension volatility hold lower--a province of affairs that, inwards the past, has been associated amongst subnormal forrard returns.  Stocks making novel monthly highs across all exchanges declined from 1221 to 822; monthly lows ticked upward from 106 to 137.  So it's difficult to say that nosotros pick out weak breadth.  As noted yesterday, my mensurate of upticks vs. downticks has continued positive.  Yesterday was positive, but full institutional participation contracted least since the rally began.  Again, this has been associated historically amongst subnormal returns.  Institutional participation is a mensurate of full upticks as well as downticks across all NYSE shares (not mass traded).  The depression mass as well as volatility brand me non peculiarly bullish; the absence of novel lows as well as downticks brand me non peculiarly bearish.

*  My cycle mensurate continues inwards positive territory but off its highs.  Many of my breadth measures await this way:  positive, but off their peaks.  Note how we've stayed positive for much longer than during recent cycles--again a tell that this has been to a greater extent than than a comport marketplace position rally or fifty-fifty a bounce higher inwards a make market. 

*  Are in that location microtrends inside the marketplace position as well as are these tradeable?  Hell, I pick out no idea, but I'm researching it.  Will permit y'all know what I find.  This volition live on a purely systematic implementation.  My other inquiry projection is identifying longer term cycles inwards the stock market, amongst information going dorsum to 1980.  This is based on a unique implementation of the resultant fourth dimension concept.  Basing resultant fourth dimension on mass doesn't move because of the secular differences inwards mass over the catamenia of decades.  If you're non innovating, you're stagnating.  Too many traders pat themselves on the dorsum for doing the same affair 1 time again as well as 1 time again as well as calling it discipline.  Influenza A virus subtype H5N1 disciplined implementation of an outmoded approach volition lose coin amongst admirable consistency.

*  If y'all await at stocks exterior the U.S., such equally the EFA ETF, the longer-term motion painting is pretty unimpressive.  It is non clear to me that negative rates are having the desired affect overseas.  If this is the case, nosotros could run into to a greater extent than aggressive key depository fiscal establishment stimulation of economies, peculiarly if those indicators of deflation--strengthening currencies, weakening commodities, etc.--become to a greater extent than problematic.  

Thursday, March 31st

*  Is the housing marketplace position strong or weak?  See It Market notes mixed signals amidst furnish constraints.

*  Oil as well as commodities overall (DBC) pick out been lagging stock toll gains recently; keeping an oculus on that relationship.  I'm also noticing high yield bonds (JNK) lagging recent toll gains inwards stocks.  These relationships were key during the catamenia of marketplace position weakness.

*  Stocks rallied nicely early on yesterday, 1 time again posting fresh rally highs earlier pulling back.  Breadth 1 time once again expanded, amongst over one m stocks across all exchanges posting fresh monthly highs.  My mensurate of upticks vs. downticks continued quite strong; below nosotros tin run into a 10-day moving average.  As mentioned before, mass has non been impressive, but the mass traded has been quite skewed toward the buyers:

*  One of my pure volatility measures continues at levels to a greater extent than consistent amongst marketplace position highs than lows.  Note VIX straightaway trading a flake higher upward 13.  This has the potential to significantly constrain directional movement across all fourth dimension frames.  There is less mass traded, *and* each unit of measurement of mass moves toll less.

*  Note the continued forcefulness of liquid, high character corporate bonds (LQD).  In a globe of depression as well as fifty-fifty negative rates, whatever yield becomes a prophylactic haven.  Hence the surroundings inwards which stocks as well as bonds pick out been jointly outperforming (the conduct a chance parity trade).


Wednesday, March 30th

*  New Trader U highlights 22 bad trading habits.  Notice how many of them boil downwards to non existence rule-governed, where the rules reverberate trading strengths as well as identified best trading practices.  That suggests that traders are suffering, non simply because they don't written report markets, but because they haven't genuinely studied their ain performance.

*  Stocks liked the statements of the Fed chair as well as that has lifted us to a novel high for this rally.  Interestingly, across all stocks on all exchanges, iii calendar month novel highs versus lows are lagging their peak from a dyad of weeks agone (see below).  Among SPX shares, however, fresh 100-day highs vs. lows did hitting a marginal novel peak.  I would larn concerned nearly the uptrend if stocks making fresh novel lows were to expand from here.

*  Once again, nosotros saw buying pressure level completely dominate selling pressure level via the uptick/downtick measures.  This lifted the cumulative uptick/downtick mensurate to novel highs (see below).  As noted yesterday, mass has non been stellar (though it picked upward yesterday), but what mass has been in that location has been strongly skewed to the buyers as well as that has been associated historically amongst favorable near-term returns (upside momentum).

Tuesday, March 29th

*  How tin y'all honor merchandise opportunities that others miss?  Here is a procedure that tin assistance y'all larn amend at perceiving opportunity.

*  Meh.  Volume has been quite lackluster, as well as that is to a greater extent than typical of marketplace position tops than bottoms.  We remain inwards relatively oversold territory on my swing measures as well as my measures of upticks vs. downticks remain strong.  So my base of operations illustration remains a continued displace higher, but I can't say I'm peculiarly impressed amongst recent action.  Financial as well as unloosen energy shares pick out been relatively weak as well as I hold to hold an oculus on little caps.  Perhaps calendar month end/quarter cease flows volition convey about life to the market.  Stocks making fresh monthly highs did uptick yesterday as well as I'm non seeing an influx of selling at all.  Of the (low) mass acquaint yesterday, buyers were dominant.

*  Put/call ratios were depression yesterday; shares outstanding for SPY pick out been modestly elevated.  Bears are relatively absent.

*  We're working off quite an overbought level, per the intermediate-term forcefulness nautical chart below, which tracks the release of SPX shares making novel highs vs. lows on multiple fourth dimension frames.  To the extent that nosotros tin produce hence amongst minimal toll damage, it is supportive to the bulls.

Monday, March 28th

*  In illustration y'all missed, here's my latest podcast; thank y'all to Chat With Traders.

*  We've bounced from a swing oversold degree and, equally nosotros tin run into below, are non yet at an overbought level.

*  Buying involvement hitting a novel rally high amongst this most recent bounce.  This mensurate tracks upticks versus downticks for all listed stocks, non simply those on NYSE.  

*  The 1 wing inwards the ointment that I run into is the depression mass as well as volatility, which are associated historically amongst subnormal forrard returns over an intermediate-term horizon.  My mensurate of cumulative upticking as well as downticking is non yet at such a depression request that would advise pathetic near-term returns.  As a rule, bull moves decease amongst an absence of buyers.  It's something I'm monitoring daily.