Info!! Finding Chance Inwards Stock Marketplace Pose Cycles

The recent post suggested that a diverseness of marketplace seat observations tin displace live on pulled together past times drawing upon an explanatory framework.  Influenza A virus subtype H5N1 proficient theory non alone helps us empathize what has happened inwards markets; it too suggests what nosotros mightiness notice inwards the future.  Science begins with observation.  Until nosotros link our observations too brand feel of them, they stay isolated information points.  Theory is a large business office of what transforms information into explanation.

What my observations advise is that a express release of variables, such every bit buying too selling pressure; volatility; breadth; sentiment; too correlation, uniquely predict short-term cost receive inwards the stock market.  An ongoing query involvement has focused on the construction of cycles inwards the stock market too the co-movement of these variables at unlike phases of marketplace seat cycles.  In general, I reveal that marketplace seat cycles tin displace live on broken downward into several phases:

1)  Bottoming process - At marketplace seat lows, nosotros tend to consider an elevation of book too volatility too a high flat of marketplace seat correlation, every bit stocks are dumped across the board.  Selling clit per unit of measurement area far exceeds buying clit per unit of measurement area too persuasion becomes quite bearish.  At of import marketplace seat bottoms, nosotros consider cost lows that are non confirmed past times marketplace seat breadth, every bit stiff stocks laid out to diverge from the pack too attract buying interest.  At those bottoms, nosotros too reveal a ascent inwards buying clit per unit of measurement area too a reduction of selling pressure, every bit fresh marketplace seat lows neglect to attract novel selling interest.  

2)  Market rise - With the drying upwards of selling, depression prices attract buying from longer timeframe participants every bit good every bit shorter-term opportunistic ones.  The marketplace seat rises on stiff buying clit per unit of measurement area too depression selling pressure, too the ascent generates sufficient thrust to generate a proficient grade of upside momentum.  Volatility too correlation stay relatively high during the initial elevator off from the lows too breadth is strong.  Dips are bought too the ascent is sustained.

3)  Topping process - The marketplace seat hits a momentum peak, oftentimes identifiable past times a peak inwards the release of shares registering fresh highs.  Selling from this peak to a greater extent than oftentimes than non exceeds the flat of selling seen during the marketplace seat rise, but ultimately attracts buyers.  Weak stocks laid out to diverge from the pack too fresh cost highs typically occur with breadth divergences too lower levels of correlation.  New buying lacks the thrust of the before displace from the lows too volatility wanes.  By the fourth dimension nosotros hitting a cost peak for the cycle, divergences are clear, volatility is low, both buying clit per unit of measurement area too selling clit per unit of measurement area are low, too persuasion remains bullish.  

4)  Market decline - Fresh selling creates a pickup inwards correlation too volatility, every bit short-term back upwards levels are violated too selling clit per unit of measurement area exceeds buying pressure.  Breadth turns negative too the volume of stocks directly displace lower.

The thorniest occupation I accept encountered inwards my run with markets concerns the timing relationships with these phases of marketplace seat cycles.  I am convinced that the cycles are aperiodic (they create non adhere to stiff timetables; in that location is no invariant x-day cycle), too I am too convinced that in that location is a non-random proportionality with the phases that occurs inside too across fourth dimension frames.  Capturing this proportionality has been the greatest challenge inwards the research.

The nesting of larger too smaller cycles creates periods of apparent trending too periods of apparent range-boundedness inwards markets.  Optimal trading strategies conform to the parameters of the cycles operating inwards markets at a given time.  Problems occur inwards trading when a trader's belongings menstruum greatly differs from the operative cycle period(s).  Influenza A virus subtype H5N1 mutual occupation inwards trading today's stock marketplace seat is that the operative cycles are much longer than well-nigh active traders' fourth dimension horizons.  This leads to chasing nickles inwards forepart of larger displace steamrollers. 

By tracking the ongoing changes inwards marketplace seat sentiment, volatility, breadth, correlation, too buying/selling pressure, nosotros tin displace seat where nosotros stand upwards inwards a marketplace seat cycle too accommodate trading strategies accordingly.  During marketplace seat rises too declines, nosotros desire to live on belongings positions too going with momentum; during topping too bottoming processes, nosotros desire to live on fading attain extremes too trading to a greater extent than tactically.  In general, nosotros desire to live on aligned with the largest operative cycles, every bit these greatly comport on the shape too timing of smaller cycles.

I am mindful that it is tardily to reveal "cycles" inwards hindsight, with trivial explanatory benefit.  The cycle concept alone has value insofar every bit it organizes observations with fundamental marketplace seat variables too suggests observations to come.  I volition live on elaborating the explanatory too predictive value of cycles inwards futurity posts; it is the major focus of my marketplace seat research.  For an fantabulous illustration of cycle query creating profitable trading strategies, banking company check out the StockSpotter site.

Further Reading:  Market Profile every bit a Practical Theory
.

Info!! Capturing Value As Well As Momentum Inwards The Stock Market

In mid-2014 I hitting upon an catch for analyzing the forcefulness as well as weakness of the overall stock market. Suppose nosotros took every stock inwards the New York Stock Exchange as well as assessed whether it gave a purchase signal, a neutral signal, or a sell betoken for a touchstone technical indicator, such equally Bollinger Bands. Such a stair out would capture the breadth of forcefulness as well as weakness for stocks equally a whole, non but for the index itself.  Would this last a useful measure?  It turns out that the stair out was indeed useful as well as I began collecting the information daily from the Stock Charts website.

Then I hitting upon roughly other idea.  The signals from cumulated stock functioning on ane indicator (such equally Bollinger Bands) were unlike from the signals from other indicators (such equally RSI as well as Parabolic SAR).  Might it last useful to practice an indicator of indicators? This would exhibit occasions when nosotros convey forcefulness as well as weakness across all stocks *and* all indicators.  

The resulting cumulative indicator stair out is charted to a higher house from 2016 forrad (indicator inwards red; SPY inwards blue).  Even inside the considerable uptrend we've had over that menses inwards SPY, we've seen relative periods of overbought as well as oversold inwards the measure.  Note that nosotros currently stand upward at a significantly oversold level.

Going dorsum to June of 2014, when I kickoff began accumulating these data, side past times side 10 twenty-four hours returns inwards SPY convey averaged +.01% when nosotros convey been inwards the exceed one-half of the distribution for the cumulative measure.  When nosotros convey been inwards the bottom one-half of the measure, side past times side 10 twenty-four hours returns inwards SPY convey averaged +.63%.  This is a important value effect.  Returns convey been significantly amend over a swing menses when we've been oversold than when we've been overbought.  If nosotros intermission downwards returns past times quartiles, the upside returns are fifty-fifty to a greater extent than striking inwards the weakest (most oversold) quartile, which is where nosotros stand upward now. Interestingly, when the indicators convey been simultaneously strong, we've seen superior upside returns over the same 10 twenty-four hours horizon.  

In other words, the cumulative stair out is capturing both a value termination (buy when things convey gotten weak) as well as a momentum termination (buy when at that spot is a wide thrust higher). Returns convey been subnormal if nosotros are non broadly weak or broadly strong.

This is a overnice representative of the value of "big data" as well as particularly the value of well-conceived unique information sets.  As a discretionary trader, I divulge it crucial to last quantitatively informed.  I divulge that integration of discretionary as well as quantitative alongside the neat bulk of the successful traders as well as portfolio managers I locomote with.  Even for longer fourth dimension frame active investors, timing marketplace entries as well as exits with shorter-term measures that capture value as well as momentum tin flaming meaningfully heighten returns.

Further Reading:  The Foundation of Trading Success

.

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 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.