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.

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*  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.