Info!! Learning From Relative Performance: Lessons From Fixed Income Measures

I of late noted that we tin larn quite a flake from the relative functioning of stock marketplace sectors.  The same is truthful for the relative functioning of fiscal assets inwards general.  How traders in addition to investors deploy their working capital missive of the alphabet speaks volumes regarding take in in addition to perceived opportunity.  Today's post begins a serial on using ETFs to practice informative relative indicators.  In this post, we're looking at a few relevant fixed income ETFs in addition to what nosotros tin larn from their relative performance.

The top nautical chart is a relative mensurate I've tracked for a while:  the relative functioning of high-yielding corporate bonds (JNK) to high character corporate bonds (LQD).  In general, when investors are risk-seeking in addition to experience secure nearly economical conditions, they are willing to make to pursue lower character fixed income assets in addition to obtain higher yields.  Conversely, inwards a risk-averse posture, investors volition flee lower character assets in addition to essay the security of high quality.  This is exactly what nosotros run across inwards the human relationship betwixt JNK in addition to LQD.  Dips inwards that human relationship induce got to a greater extent than oftentimes than non corresponded to risk-off periods inwards the stock market.

Note that JNK:LQD topped out good ahead of the stock marketplace and, indeed, is below the peaks seen inwards 2010 in addition to 2011.  It appears that the make for lower character yield has been diminishing inwards recent years relative to the make for stock marketplace returns.  More on that inwards a bit.

The instant nautical chart takes a aspect at the relative functioning of high character bonds (LQD) to stocks (SPY) overall.  Again, nosotros run across the designing of bonds outperforming during risk-off periods inwards the stock market, but notice how real attenuated this designing has move past times away inwards recent years.  Quite simply, high character bonds induce got been inwards a downtrend relative to stocks inwards the past times few years, inwards business office reflecting the crushing of yields due to the naught involvement charge per unit of measurement policies of the Fed.  (A nautical chart of stocks versus international bonds looks quite similar).  As bonds induce got gone out of relative favor, the volatility of the stock/bond human relationship has decreased notably, in addition to hence that--during risk-off periods--we're seeing less flying to character vis a vis bonds than during 2010 in addition to 2011.

The bottom nautical chart looks at the relative functioning of a higher yielding stock sector (XLU) versus stocks overall (SPY).  Note a similar downtrend in addition to declining volatility, though non every bit pronounced.  The defensive sector all the same tends to outperform during risk-off periods, but every bit these periods induce got been milder inwards recent years, we're seeing less investor flying to safety.

I believe tracking the relative functioning of fixed income to stocks continues to supply information, but anchoring our expectations on relationships nosotros observed pre-2012 would hold upwards a mistake.  Swamping the relative rotations from stocks into yielding instruments has been that Great Rotation that has been anticipated for years:  alongside artificially depression involvement rates, coin has systematically moved from fixed income into equities.  This is a major dynamic underpinning the electrical flow bull market.  After all, fifty-fifty alongside the recent bull marketplace action, stocks all the same yield to a greater extent than than most bond funds.  Amidst real depression bond returns, the flying to character has been replaced past times a flying to opportunity.

I suspect this, too, shall goal badly at or in addition to hence point.  With commodity prices on their dorsum in addition to inflation nowhere inwards sight--and alongside key banks overseas inwards farther asset-buying modes--it is hard to run across yields rising inwards the nigh term.  Should this move past times away on to fuel stock marketplace interest, nosotros could run across shares motion from generous valuations (and rich ones inwards or in addition to hence cases) to unsustainable ones.  One sign of this would hold upwards a similar flying to stocks across Europe in addition to Asia, whose stock markets induce got lately underperformed the U.S., but who similar a shot are farther embarking on their ain currency-devaluing, yield-crushing rounds of property purchases.  

We alive inwards foreign times.  One takeaway from the relative fixed income indicators may hold upwards this:  In a global world, the former stock marketplace wisdom of "Don't acquire by the Fed" has been replaced past times "Don't acquire by the banks."

Further Reading:  Risk Management in addition to Learning from Losses
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Info!! Tempering Trading Expectations: Agreement Stock Marketplace Pose Volatility

I've written most this theme inward the past; delight check out the postal service from July. Volatility continues to come upward out of this market, afterwards the elevated levels nosotros saw belatedly inward 2008 too early on inward 2009. In many ways, the theme of recent markets has been "return to normality": nosotros come across a return of normal levels inward the LIBOR-OIS spread, a supply to to a greater extent than normal levels inward the VIX, a supply of to a greater extent than normal levels inward credit spreads, too a supply of to a greater extent than typical daily volatility inward the stock market. That's non to enjoin that all is good inward the economy; clearly problems inward debt levels, housing, too unemployment remain. Rather, fiscal markets lead keep been recovering from panic levels of pricing.

If nosotros aspect at the median monthly grade of high-low arrive at inward the S&P 500 Index (SPY), nosotros uncovering that the electrical current grade is almost 25% below the grade from merely July 1st too over 40% lower than at the offset of May. In the final 3 weeks, exclusively i 24-hour interval has displayed a high-low trading arrive at of greater than 2%; none lead keep moved to a greater extent than than 2.5%.

What that agency is that, if the electrical current day's book is running or too hence levels of the by several weeks too no major word is roiling currency, involvement rate, and/or commodity markets, the odds that we'll come across a "big day"--up or down--are quite small.

Indeed, nosotros tin terminate quantify what a "big day" mightiness aspect similar amongst the pivot-derived net targets that I postal service for SPY (see the latest update equally posted to Twitter). The pin grade represents an approximate of yesterday's average trading price. Only most 15% of trading days deed to the R3 resistance level, too exclusively most 15% deed to the S3 back upward level, going dorsum to 2000. Those levels, equally I calculate them, are volatility adjusted, too hence they lead keep into draw of piece of work organization human relationship the shifts inward volatility described above.

At this point, it would exclusively lead keep a deed of over a piddling to a greater extent than than 1% from the pin to generate a "big" R3 or S3 day. That agency that most 70% of all days tin terminate endure expected to merchandise inside a piddling to a greater extent than than 1% from the pivot. If book is running calorie-free on a calorie-free word day, nosotros tin terminate pretty much hang our chapeau on staying inside that band.

Knowing that is real helpful inward tempering our expectations for how far a deed mightiness run during the day. It is besides helpful inward gauging when the marketplace position has moved most equally far equally nosotros mightiness expect, too hence that nosotros tin terminate lead keep profits.

Knowing how much markets are moving *at your typical asset period* is i of the most useful pieces of data y'all tin terminate purpose inward setting targets too goal losses. Many traders anchor their expectations to by levels of volatility, overstay their welcome inward depression volatility markets, too laissez passer on dorsum gains equally a result. If y'all lead keep seen profitable trades opposite on you, in that location is a existent possibility that this is an of import argue why.
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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: Calendar Week Of October 5Th

Friday, Oct 9th

*  Morning selling push clit per unit of measurement area yesterday could non breach overnight as well as prior 24-hour interval lows, continuing the apartment correction.  In general, when overnight as well as prior 24-hour interval lows/highs concur on early on 24-hour interval selling/buying, it's worth thinking nearly buying the dip/selling the bounce to exploit the potential designing of higher lows/lower highs.  With the Fed minutes, pregnant buying flows ane time over again returned to stocks as well as nosotros over again made novel highs for this move, alongside an expansion inwards the lay out of shares registering fresh highs.  H5N1 total of 242 SPX stocks registered fresh 20-day highs vs. lows, the highest since August 17th (raw information from Index Indicators).  As emphasized yesterday, I'm non seeing the kinds of divergences that would ordinarily precede a substantial correction. We're ane time over again stretched on a multi-day basis, as well as therefore that leaves me inwards the style of buying pullbacks.

*  Earlier entries mentioned the real strong buying push clit per unit of measurement area during this rise.  On a five-day basis, we've seen buying forcefulness that has alone been introduce on nine prior occasions since 2012.  Ten days later, SPX was upward 8 times, downward ane time for an average gain of nearly +3.0%.  Once again, this highlights the momentum upshot ane time institutions dominate on the buying side.

*  Volatility continues to decline, alongside VIX straight off below 18.  If this is similar past times strong buying cycles, nosotros volition run into pocket-size pullbacks as well as farther grind higher on lower volatility until breadth divergences stimulate to appear. 

Thursday, Oct 8th

*  Buying dips indeed proved to move a useful strategy inwards Wednesday's session, equally nosotros closed ane time over again alongside strength.  Across all exchanges, nosotros saw over G stocks register fresh monthly highs, a novel high for this upleg.  In full general I don't decease overly concerned nearly sustained downmoves unless nosotros run into a preceding menses of fourth dimension inwards which fewer stocks participate inwards the strength.  Thus far, the participation has been solid, alongside the buying push clit per unit of measurement area mentioned yesterday continuing strong.  We're quite extended inwards the curt run, as well as therefore the consolidation we're seeing inwards overnight trading is non unusual.  My leaning is to permit this consolidation to run its course of report earlier resuming long positions.  Even inwards salubrious uptrends, it's non odd to acquire a pullback inwards which the bulk of shares merchandise below their iii as well as 5-day moving averages.  I'd facial expression at such a pullback equally a potential buying opportunity; I'd likewise move interested inwards buying whatever flattish correction that stays higher upward the 1960-ish level.

*  Note that VIX continues lower as well as continues to remain below 20.  I proceed to take away heed people lay the comport thesis out there, but the marketplace is but non trading that agency at present.  I believe investors run into the global weakness out at that topographic point as well as are already buying stocks inwards anticipation of farther easing from cardinal banks.  Traders who hold back for the actual cardinal banking concern announcements earlier buying may move making a mistake.  With Friday's weak jobs lay out inwards the U.S., an accomodative monetary policy across the the world was pretty good ensured.  Markets are forrad looking.

*  Below you lot tin run into a short-term charge per unit of measurement of alter indicator (red) plotted vs. ES futures (10/2/15 to the present), where each bar represents 500 cost changes inwards the index.  This normalizes for activeness during wearisome periods, such equally overnight.  I similar the perspective equally a short-term overbought/oversold measure.  In general, I similar buying oversold levels when we're making higher lows as well as higher highs as well as vice versa.  I similar taking profits when nosotros acquire overbought/oversold as well as can't brand novel highs/lows.

Wednesday, Oct 7th

*  We did indeed acquire the consolidation noted inwards yesterday's postal service and, as well as therefore far, we're seeing some belongings of the consolidation as well as buying of the dip inwards overnight trading.  I'm watching to run into if nosotros tin concur those overnight lows, alongside a leaning toward buying weakness that holds higher upward ES 1960.  My short-term models remain modestly bearish, however, as well as therefore I'm opened upward to the possibility of farther consolidation.

*  Readers volition retrieve that I interruption the uptick/downtick statistics into split upward measures of buying push clit per unit of measurement area as well as selling pressure.  The buying push clit per unit of measurement area has been real strong over the past times v trading sessions.  Returns 3-5 days out conduct hold been choppy, alongside picayune edge, but 10 days out nosotros run into fifteen occasions up, 2 downward for an average gain of over 2%.  We'll ask to run into distinct selling push clit per unit of measurement area to entertain a provide to a bearish regime; we'd likewise ask to run into VIX top 20.

*  Put/call ratios conduct hold come upward downward quite a chip from the recent marketplace lows.  That's some other argue I wouldn't move surprised past times sloppy trading nigh term.  I likewise banker's complaint the upside breakouts inwards emerging marketplace currencies (CEW) as well as commodities (DBC); both are reversals of the previous bearishness unopen to China.

Tuesday, Oct 6th

*  Great summary of my recent podcast alongside Better System Trader from The Waiter's Pad; thanks, Mike!

*  We saw real proficient follow through to Friday's strength, equally the volatility addition the buying flows (volume-weighted NYSE TICK) created pregnant upside momentum.  We saw 780 stocks across all exchanges brand fresh one-month highs against 143 novel lows.  We've come upward off a chip overnight as well as my models are moderately bearish over a 3-5 24-hour interval horizon, as well as therefore some consolidation is to move expected.  My sense, however, is that many traders conduct hold missed this rally as well as volition move interested inwards buying dips, which could maintain consolidations modest--as much inwards fourth dimension equally inwards price.

*  Another argue I facial expression some consolidation is that we're quite stretched on a short-term basis, alongside over  90% of SPX shares trading higher upward their 3, 5, as well as 10-day moving averages.  When we've had a moderate VIX nether those circumstances (between fifteen as well as 25; due north = 12 going dorsum to 2006), the side past times side 24-hour interval has been upward iii times, downward nine for an average loss of -.12%.  Indeed, 10 of the 12 occasions posted a lower unopen over the side past times side ii trading days.  That beingness said, the side past times side 10 days conduct hold been 8 up, four downward for an average gain of +.37%, alongside 10 of the 12 occasions posting a higher unopen inside v trading days.  So non much border inwards general, though my base of operations instance is to run into consolidation inwards the side past times side 24-hour interval or ii that is worth buying into.

*  I mentioned yesterday that I'm keeping an optic on VIX.  We're below twenty for the kickoff fourth dimension inwards a while; if whatever consolidation does occur inwards a flattish fashion, reducing realized volatility, that would advise a provide to the onetime volatility government as well as would move bullish overall for stocks.

Monday, Oct 5th

*  In my Forbes blog, I review ane of the best marketplace books I've read inwards a long time.  It's a detailed handling of high yield markets as well as a peachy reminder of how nosotros tin larn a peachy bargain nearly the markets nosotros merchandise past times studying as well as agreement related markets.

*  Fri was a 24-hour interval worth studying inwards detail.  We had a weak payrolls lay out as well as stock futures sold off hard.  We opened alongside selling on the day, equally NYSE TICK hitting several quite negative figures, but cost stopped going lower as well as the downticks began making higher lows.  This emboldened buyers to come upward in, upticks swamped downticks, as well as nosotros injure upward alongside a real strong 24-hour interval to the upside.  That forcefulness has continued into overnight trading, equally it indeed appears that nosotros conduct hold successfully tested the downside.  The oversold intermediate-term indicators that I referenced final calendar week volition non hitting overbought levels for a spell as well as volatility appears to move at the bull's back, as well as therefore I facial expression an surroundings inwards which pullbacks volition move bought.

*  I volition move watching VIX closely here.  One thought I'm playing alongside is that we've entered a higher volatility regime, much equally what happened inwards 2007 prior to the 2008 comport market.  VIX mostly bottoms ahead of stock marketplace highs and, inwards the electrical flow environment, that wouldn't surprise me.  That 2007 menses was a rangy topping marketplace alongside proficient swings due to the higher volatility.

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.

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!! Volatility Continues To Spend Upwards Inwards The Stock Market

I'm hearing from quite a few frustrated daytraders of the stock index futures. Note inward the nautical chart higher upward that, every bit the marketplace has marched steadily higher, volatility has been coming out of the S&P 500 Index (SPY). The cherry-red describe of piece of employment higher upward shows the median 20-day high-low trading hit for SPY; it has moved to novel lows for the year. Five of the end 7 trading sessions convey featured ranges of nether 1%, far less volatility than nosotros saw early on inward the year. Traders who convey non adapted to the irksome midday weather too the express follow through to marketplace moves convey establish themselves chopped up, especially if they're playing for breakout moves too buying highs too selling lows.
.

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.

Info!! Trading Notes: Calendar Week Of November 23Rd

Friday, Nov 27th

*  Not much changed from yesterday alongside honour to U.S. stocks, equally nosotros boot the bucket on to concord of import back upwards inwards the lower 2080s inwards the front end calendar month ES contract.  I boot the bucket on to move inwards the style of buying weakness that holds higher upwards overnight lows, but await merchandise to move deadening today given the long vacation weekend that many U.S. traders volition move taking.

*  So far, the number of stocks displaying odd forcefulness inwards the recent motion higher has been modest.  Below is a nautical chart of the number of NYSE issues closing higher upwards their upper Bollinger Bands minus the number closing below their lower bands.  (Data from the splendid stockcharts.com site).  To this point, that stair out of forcefulness has been waning.

*  Another resources that I stimulate got constitute quite useful is the Stock Spotter site.  They furnish purchase in addition to sell signals for private stocks based upon their bicycle models.  They also stimulate got toll forecasts for each stock in addition to ETF.  I've constitute those forecasts for SPY to stimulate got value in addition to stimulate got backtested them for the improve operate of ii years.  At present, their forecast is bullish for stocks over a adjacent two-week horizon.


Thursday, Nov 26th

*  Happy Thanksgiving in addition to many cheers to readers!  I aspect frontward to a dandy 2016.  This latest article describes a structured procedure for dealing positively alongside setbacks in addition to failure.  So much of the departure betwixt the successful trader in addition to the unsuccessful 1 is how they bargain alongside the inevitable losses dealt past times markets (and past times our faulty processing of market-generated information).

*  We've continued modestly higher inwards overnight trade, equally the basic strategy of buying weakness that holds higher upwards key prior twenty-four hr catamenia in addition to overnight levels has been a practiced one.  The relative outperformance of little caps is something I'm watching.  Utility stocks, faced alongside the prospect of rise rates inwards the U.S., stimulate got been relatively weak.  Below, the graphic from the splendid FinViz site shows mixed surgical procedure amidst U.S. sectors.  It continues to move a rotational environment.

*  On a to a greater extent than global scale, I'm watching the relative surgical procedure of China, emerging markets, Japan, in addition to European stocks, given the prospect of farther easing from overseas cardinal banks in addition to a charge per unit of measurement hike from the Fed.  Note the relative forcefulness of the U.S. dollar of late; that is also a theme that is impacting U.S. shares.  I know besides many traders who are in addition to so busy looking for short-term setups that they completely immature lady larger themes that are driving stocks on the longer fourth dimension frame. 

Wednesday, Nov 25th

*  We tested the overnight lows inwards early on merchandise yesterday in addition to constitute rigid buying off the lows, bringing us dorsum toward the upper halt of the recent range.  The inability to sustain weakness is consistent alongside a marketplace seat inwards a rise cycle, though I do detect tepid breadth therefore far inwards the motion higher.  For example, the past times duo of days, we've seen to a greater extent than stocks register fresh 52-week lows than highs.  While I do recollect nosotros stimulate got a practiced chance to attempt out recent highs, I am far from convinced that we're launching to a fresh bull leg from here.  

*  Dec promises to move an eventful month, alongside ECB in addition to Fed meetings that could Pb to monetary easing in addition to an involvement charge per unit of measurement hike, respectively.  I recollect it's possible that, alongside a dovish Fed hike in addition to monetary ease inwards Nippon in addition to Europe, nosotros could reckon a renewed "QE" merchandise inwards stocks.

*  The nautical chart of cumulative upticks vs. downticks amidst all listed stocks (red delineate of piece of job below) has been heading to novel highs.  That reflects relative forcefulness late amidst smaller cap issues.  Interestingly, the cumulative upticks vs. downticks for Dow stocks exclusively is inwards a recent downtrend.  This rotational merchandise could good boot the bucket on through this vacation period.

Tuesday, Nov 24th

*  Yesterday's merchandise was interesting inwards that nosotros saw considerable buying involvement inwards early on trade, equally tracked past times NYSE TICK, but much of the forcefulness centered on smaller cap issues in addition to non the NASDAQ in addition to SPX large caps.  What turns a bull, rise stage of a marketplace seat bicycle into a topping stage is that buying involvement fails to accept prices meaningfully higher, equally around segments of the marketplace seat display weakness equally others concord up.  In yesterday's trade, it was the NASDAQ index--and AAPL specifically--displaying weakness.  As buying failed to force indexes higher, sellers came inwards during the afternoon in addition to took us lower.  Yesterday's merchandise was a squeamish illustration of how markets plough on a brusque fourth dimension frame.  It was also a squeamish illustration of how it's of import to rail multiple marketplace seat sectors, non simply the index you're trading.

*  Painful sense has taught me to non move long stocks alongside pure volatility (volatility per unit of measurement of trading volume) is low.  Forward returns simply aren't positive on average.  As you lot tin reckon below, pure vol had gotten quite depression recently, a xanthous caution light.  With the downing of the Russian jet overnight inwards Turkey, stocks stimulate got fallen dorsum in addition to taken out stops inwards the 2070s inwards the ES futures.  Pure vol has expanded meaningfully.  Adjusting volatility expectations in addition to risk/reward is key here.  On 1 hand, corrections that get upwards pure vol offering practiced entry points on the long side.  On the other hand, nosotros at nowadays stimulate got a province of affairs where idiosyncratic (geopolitical) factors are moving markets.  It is hard to successfully merchandise historical patterns when idiosyncratic conduct chances factors dominate.  I'm opened upwards to buying weakness that cannot accept out the overnight lows, but inwards no rush to larn involved.  

Monday, Nov 23rd

*  How much fourth dimension do nosotros waste product in addition to how much mental clutter do nosotros do past times staring at screens, opening superfluous email, in addition to reading cloth irrelevant to our conclusion making?  How does that clutter clog creative processes in addition to interfere alongside generating novel in addition to improve ideas in addition to trades?  This post on media consumption tackles a really of import topic: nosotros can't get together practiced ideas if we're non collecting the right puzzle pieces.

*  We're trading inwards a relatively sideways gain inwards the ES futures, correcting to a greater extent than inwards fourth dimension than inwards price.  That is mostly what markets do when they're trading inwards a practiced uptrend, in addition to that's how I'm treating this marketplace seat until proven otherwise.  The exclusively flies inwards the ointment are depression levels of implied correlation in addition to pure volatility, both of which are associated alongside subnormal near-term returns.  My basic strategy, equally has been the instance recently, is to purchase weakness that holds higher upwards overnight in addition to prior day's lows.

*  I mostly similar to purchase oversold levels inwards rise markets in addition to sell overbought levels inwards falling ones.  Influenza A virus subtype H5N1 large portion of profitability comes from practiced entry execution.  The same applies to move out execution.  When positions become our agency but are stretched to the upside or downside, it mostly pays to accept at to the lowest degree around of our seat off inwards markets that display short-term hateful reversion.  I aspect at a medium term charge per unit of measurement of alter stair out on bars created every 500 toll changes to furnish perspective on overbought in addition to oversold.  It's non something I merchandise off of directly, but utilisation to mostly guide practiced in addition to bad merchandise location.