Info!! Trading Notes For The Calendar Week Of April 4, 2016

Friday, Apr 8th

*  Insightful postal service on the misery of bull markets from The Reformed Broker.  Many traders are temperamentally long vol; the 1 prediction you lot most rarely request heed is 1 for piffling get as well as piffling toll change.

*  Going dorsum to 2010, if you lot accept the number of 5-day novel highs minus lows amidst SPX stocks as well as compare those to 20-day novel highs minus lows, you lot teach an interesting view.  When that fourth dimension serial is divided into quartiles, nosotros notice that when 5-day novel highs/lows greatly overstep 20-day highs/lows, the side past times side v days inwards SPY average a gain of exactly +.04%.  When 20-day novel highs/lows greatly overstep 5-day highs/lows, the side past times side v days receive got averaged a gain of +.39%.  (Raw information from Index Indicators).  Think of the implications for FOMO trading...

*  We reversed Wednesday's strength yesterday, closing amongst 5-day novel highs/lows good below the 20-day level.  Less than 20% of  SPX shares closed inwards a higher house their 5-day moving averages and, for the origin fourth dimension since this rally began, fewer than 50% of stocks closed inwards a higher house their 20-day averages.  My wheel mensurate is at 1 time neutral, every bit nosotros run off the recent potent readings (see below).

*  VIX has jumped to inwards a higher house sixteen amongst yesterday's drop.  I receive got built a model that predicts a normal VIX grade from 2 variables:  recent toll modify as well as recent realized volatility.  When VIX is to a greater extent than expensive than the model predicts it should move based on historical precedent, returns receive got been positive; when VIX is to a greater extent than inexpensive than the model predicts, nosotros receive got seen subnormal returns.  Th of concluding calendar week through Mon of this week, nosotros hitting inexpensive levels inwards VIX valuation.  With yesterday's drop, nosotros are dorsum to beingness expensive inwards VIX pricing.  To give an idea, going dorsum to 2012, when VIX has been inwards its most richly priced quartile, the side past times side v days inwards SPY receive got averaged a gain of +.76%.  When VIX has been most cheap, the side past times side v days receive got averaged a gain of exactly +.03%.  In short, when options participants toll inwards also much vol, nosotros tend to teach higher prices--which implies a hateful reversion inwards vol!


Thursday, Apr 7th

*  What would a startup community of traders expression like?  Love this postal service from Howard Lindzon, mainly for the entrepreneurial zest I run across missing amidst then many traders as well as trading firms.  Amazing what a difference it makes to move surrounded past times innovators who convey vision as well as optimism to the future.  I run across precious piffling of that inwards the trading community.

*  Stocks flora solid buying yesterday inwards the wake of oversold readings, but receive got pulled dorsum inwards overnight trade.  My intermediate-term strength measure, which looks at novel highs versus lows for SPX shares on iii dissimilar fourth dimension frames, continues to run off its extended readings.  Many of my cycle-based measures expression similar.  We're getting fewer novel highs amidst stocks as well as novel lows receive got ticked higher the concluding 2 sessions.  Yesterday, across all listed stocks, at that spot were 467 novel monthly highs as well as 417 novel lows.

*  Using information from the Stock Charts site, I rail the number of NYSE stocks giving purchase versus sell signals across multiple technical indicators, such every bit Bollinger Bands, CCI, Parabolic, etc.  Here also nosotros run across the waning strength recently.  My mensurate of breadth volatility (the volatility of breadth readings) has picked upward lately from depression levels as well as that by as well as large has been associated amongst weak returns.

*  Housing (XHB) has been relatively strong.  Not then much commodities (DBC).  Notice the strength of euro as well as yen versus the U.S.A. dollar (FXE as well as FXY).  Hard to believe that is what ECB as well as BOJ desire to move seeing; Federal Reserve annotation the relative weakness of European (VGK) as well as Japanese stocks (EWJ).

Wednesday, Apr 6th

*  We can't modify our behaviour unless we're aware of our behaviour patterns.  Here's a neat postal service on self-awareness as well as trading from Tradeciety.

*  The pullback inwards stocks continued on Tuesday, giving us the origin existent negative breadth reading we've had since the rally launched inwards February.  (See nautical chart below).  Across all exchanges, 270 stocks made fresh monthly highs as well as 492 registered novel monthly lows.  (Data from Barchart).  Only close 10% of SPX shares closed inwards a higher house their 3-day moving averages as well as close 15% inwards a higher house their 5-day averages (data from Index Indicators), telling us that the pullback has been broad.  VIX has climbed inwards a higher house xv as well as nosotros saw greater seat buying across private shares.

*  Yesterday I noted the expansion of purchase signals for stocks on the Stock Spotter site; those signals expanded fifty-fifty farther afterwards yesterday's weakness.  This has by as well as large been positive for SPX.  Their cyclical model for SPY is also quite bullish, which has backtested well.  While I'm viewing this every bit a pullback inwards a bull stage of a wheel as well as await a retest of recent highs, I volition move watching the vigor of whatsoever bounce carefully.  Given the breadth of the recent weakness, it would non surprise me if nosotros were to come inwards a to a greater extent than prolonged topping/range period.  We should run across pronounced breadth divergences on forwards strength if that scenario were playing out.

*   Note the considerable strength inwards high character corporate bonds (LQD).  As noted a piffling land back, these are natural candidates for those seeking yield.  On the other hand, high yield bonds (JNK) receive got been relative underperformers.  This is a defensively minded market, which could also move why U.S.A. shares receive got been outperforming overseas ones (EFA). 



Tuesday, Apr 5th

*  Excellent postal service on trading strategy as well as tactics from The Crosshairs Trader.  Very helpful inwards developing trading plans.

*  We've seen a pullback inwards stocks and, amongst Monday's close, at 1 time receive got fewer than 50% of SPX shares closing inwards a higher house their 3- as well as 5-day moving averages.  With 831 monthly novel highs as well as 288 novel lows, we're yet non seeing pregnant deterioration inwards the breadth data.  Energy stocks receive got been the weakest grouping given the recent crude weakness, but I'm non seeing pregnant weakness amidst whatsoever of the sectors.  Financials receive got been relatively apartment of late, then I receive got a unopen oculus on those.

*  The realized volatility of VIX has hitting levels that receive got been consistent amongst past times marketplace peaks.

*  I noticed that, every bit of yesterday's close, nosotros had an elevated number of purchase signals on the StockSpotter site.  I proceed to move impressed amongst their work.  Their forecast model for SPY also is bullish.  When those 2 factors receive got been introduce since belatedly 2013, when I origin began tracking their numbers, returns v to 10 days out receive got been bullish.  Specifically, we've been upward xix times, downward 8 over the side past times side 10 trading sessions for an average gain of +1.17%.  


Monday, Apr 4th

*  Long-term success, inwards trading as well as inwards life, way sustaining our passions.  Here's how nosotros utilisation that.

*  We're seeing fresh highs this morn as well as receive got almost exclusively erased the drib from belatedly December.  Fri closed amongst 767 novel monthly highs across all exchanges versus 217 lows.  Still no pregnant expansion of weakness inwards the upticks/downticks data, every bit nosotros closed Fri at fresh highs.  Note that the cumulative upticks/downticks mensurate has vaulted inwards a higher house 2015 levels.

*  Among SPX shares, novel 100-day highs outnumbered novel lows past times 127 issues (data from Index Indicators).  That is the strongest breadth reading on that mensurate since the rally began inwards February.  The concluding fourth dimension nosotros had a reading that potent was belatedly inwards 2014.  Note how nosotros receive got stayed overbought inwards the novel high/low mensurate for a considerable period, attesting to the momentum of this rise.

*  Note how crude has been moving lower solar daytime afterwards day, fifty-fifty every bit stocks receive got rallied to novel highs.  The crude drib is noteworthy, coming on the backdrop of a weaker dollar.  High yield corporate debt (JNK) has also failed to brand novel highs inwards the concluding duo of weeks as well as global stocks receive got lagged (EFA).  Could it move that weaker makes for stronger?  As long every bit we're seeing deflationary forces at work, the Fed is probable to hold a dovish stance.

Info!! What Marketplace Breadth Has Been Telling Us Lately

Here are 2 updated views of stock marketplace breadth.  Recall that it was waning breadth that gave us a heads upwards on the recent marketplace weakness.  What we're at i time seeing is the reverse.

The overstep nautical chart monitors all mutual stocks traded on the major exchanges making three-month novel highs vs. three-month novel lows.  We tin run across from the nautical chart that this turn down has been much broader than ones previous.  New lows hitting their maximum degree thus far on Oct tenth in addition to thus held slightly higher upwards that degree at the marketplace depression on Oct 15th.  With yesterday's buying interest--my Buying Power measure hitting its highest degree since 2012 yesterday--new lows dried upwards in addition to thus far inward premarket today we're seeing continued buying interest.  This suggests a momentum depression has been set inward place.

The 2d nautical chart tracks the number of NYSE issues closing higher upwards vs. below their upper/lower Bollinger Bands, which I mention to equally the Bollinger Balance.  Note over again the recent persistent weakness, the failure to expand the number of shares closing below their bands at the recent lows, in addition to at i time the drying upwards of that weakness.

As I've stressed inward the past, it helps to intend of topping in addition to bottoming equally processes, non equally fixed points on a chart.  Markets brand bottoms when they hitting a momentum low, bounce, in addition to thus subsequent weakness occurs amongst less downside momentum in addition to volatility in addition to fewer shares making novel lows.  It would surprise me if this bottoming procedure is over--a full general dominion is that to a greater extent than extensive declines undergo to a greater extent than protracted bottoming--but a continued drying upwards of weak breadth is something I'll hold upwards on the ticker for to detect opportunities to scoop upwards roughly value.

Further Reading:  Finding Opportunity inward Stock Market Cycles
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Info!! 3 Marketplace Measures In Addition To What They're Telling Us

The recent post talked most the importance of existence mindful of bear witness for the other side of your merchandise too the bounce probability next short-term oversold weather condition played out on Friday.  Above are 3 perspectives on the United States stock marketplace position at week's end.

The exceed nautical chart depicts a ten-day moving average of all stocks across exchanges making three-month novel highs vs. lows.  That breadth has been deteriorating since slow October, simply abide by too that this week's cost lows saw fewer shares making fresh cyberspace novel lows than at the mid-December bottom.  For that reason, I'm viewing the marketplace position equally a make 1 defined past times the Dec highs too lows.

The middle nautical chart takes a await at the residuum betwixt buying pressure level (upticks) versus selling pressure level (downticks) across all NYSE shares.  Note the recent intensity of selling pressure level ahead of cost lows, followed past times Friday's buying surge.  This is a blueprint that has been mutual at intermediate marketplace position lows too is consistent amongst the make perspective noted above.

Finally, inwards the bottom nautical chart nosotros come across the 10-day average of changes inwards shares outstanding for the SPY ETF.  This has been an fantabulous persuasion gauge, equally nosotros get got tended to come across expansions inwards shares outstanding when traders get got been bullish too contractions inwards shares outstanding when traders too investors get got been bearish.  We finished 2014 amongst considerable bullishness too lately get got swung to the contrary extreme, in 1 trial again consistent amongst the make notion.

The follow through to Friday's rally should say us a bang-up bargain most the vigor of this market.  It would endure understandable for traders to response to pull amongst farther buying, given the recent concerns regarding V bottoms.  Influenza A virus subtype H5N1 weak follow through would advise that recent macro considerations (deflation, global economical weakness) pose ongoing headwinds.  I volition endure tracking that inwards days ahead.

Further Reading:  Gaining Fresh Perspectives
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Info!! What Stock Marketplace Breadth Is Telling Us

If you lot hold off closely, you'll come across something quite unusual:  the large cap indexes, such equally the Dow as well as SPX, accept been making or accept been to a greater extent than or less making all-time highs.  If nosotros hold off at the wide universe of mutual stocks, however, nosotros tin plough over the axe come across that to a greater extent than are making 3-month novel lows than novel highs.  Indeed, this has been the example for the by 5 trading sessions, despite a rising inward the large cap indexes over that five-day period.

In a similar vein, nosotros accept made 10-day highs inward SPX simply alone 50-60% of SPX stocks accept been trading over their 10-day moving averages.  

A piddling over 5% of modest cap stocks accept been making fresh 50-day highs, simply a piddling over 7% accept been making novel 50-day lows.  Influenza A virus subtype H5N1 fighting nether 32% of SP 600 modest cap shares were trading inward a higher house their 10-day moving averages when the DJIA made an all-time high.


A potent trend, similar a potent tide, should elevator all ships.  Influenza A virus subtype H5N1 position out of ships rest beached at the moment.

Further Reading:  Stock Market Breadth

Addendum - NRK chides:  "In a really potent stock market, corrections volition tend to travel apartment as well as rotational.  The flip side of the "weak breadth" even is a marketplace position inward which 30+% corrections inward onetime cost leaders cannot drag the wide marketplace position down.  The upside breakouts inward EFA as well as FEZ are worth keeping an eye, equally is the might of EEM to fit inward a higher house its March lows.  An upside resolution of the flattish correction could easily spark a global increase story."
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Info!! What Nosotros Tin Larn From The Relative Functioning Of Stock Marketplace Sectors

In a lilliputian while, I volition hold upwards rolling out a characteristic that examines the relative functioning of diverse segments of markets equally a bottom-up agency of agreement in addition to anticipating macro themes that are of import to the longer-term trajectories of markets.  An illustration of such bottom-up analysis is reflected inwards the relative functioning of sectors inside the stock market.

Is tech leading marketplace position performance, piece defensive sectors lag?  That is 1 sort of market.  Are nosotros seeing outperformance from consumer cyclical companies relative to consumer discretionary ones?  That is a dissimilar sort of market.  All nation us something virtually economical in addition to increment expectations of marketplace position participants.  To the extent that markets are forward-looking, such data tin hold upwards valuable, reflecting the implicit forecasts of many agents.

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So what is sector functioning telling us right now?

The exceed chart, from the first-class Finviz site, shows us that sector functioning has been highly variable over the yesteryear month.   Utilities accept dramatically outperformed Basic Materials shares in addition to many sectors accept gone nowhere over that period, despite the meaningful uptick inwards marketplace position volatility.  I would scrap that the relative outperformance of Utilities, traditionally viewed equally marketplace position defensiveness, is zero of the sort hither in addition to now.  Rather, the marketplace position is pricing inwards a disinflationary environment, inwards which rates volition hold upwards staying depression for long.  In such an environment, a component that volition motion returns is carry, the yield on whatsoever item asset.  With disinflation in addition to depression rates, the yield of utility shares is attractive in addition to at that spot is lilliputian attraction to inflation-sensitive commodity-related shares.

If this is correct, nosotros should catch bear drib dead on to attract upper-case missive of the alphabet across property classes, from currencies in addition to rates to stocks.  We've already seen a laissez passer on for yield inwards rates markets, equally investors accept gone farther out inwards duration in addition to farther out on the low-quality spectrum to laissez passer on bear returns.  At unopen to betoken that volition terminate badly, but the marketplace position is non telling us that betoken is now.

The middle nautical chart is my tracking of rolling 20-day correlations amid stock marketplace position sectors in addition to the bottom nautical chart reflects rolling 20-day volatility amid sectors.  Typically inwards a marketplace position cycle, volatility in addition to correlation expand into marketplace position lows in addition to drib dead on high equally the marketplace position rebounds.  As a bike matures, volatility wanes in addition to correlations come upwards down, equally nosotros catch reduced volumes in addition to to a greater extent than divergent day-to-day functioning amid sectors.  One of the things I give away interesting immediately is that sector performance, per the exceed chart, is divergent, but we're nonetheless seeing high day-to-day correlations of sector movement.  In other words, sectors are moving inwards relative lockstep, but unopen to are moving amongst to a greater extent than forcefulness than others.

The continued high levels of correlation in addition to volatility suggests to me that the electrical flow marketplace position cycle, coming out of the mid-October lows, is nonetheless relatively early on inwards its development.  If precedent holds, nosotros should catch a momentum peak inwards breadth, followed yesteryear declining volume, volatility, breadth, in addition to correlation, equally stocks exceed out.  The resilience of stocks itself reflects a forecast that continued depression rates in addition to the recent turn down inwards unloose energy prices volition non hold upwards negatives for corporate earnings growth.

Further Reading:  The Importance of Sector Correlations
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Info!! Trading Notes: Calendar Week Of 8/17/2015

Friday, August 21st

*  It was a 2d right away twenty-four hr menses of real weak book flows; the failure to sustain bounces was evident relatively early on inwards the twenty-four hr menses in addition to quite telling, every bit the gain marketplace gave way to a trending trade.  Stocks making fresh novel lows expanded in addition to almost 600 NYSE issues unopen below their lower Bollinger Bands.  Interestingly, when that has happened inwards the past times year, at that topographic point has tended to move farther downside over the adjacent v trading days.  We are real stretched to the downside short-term, with fewer than 10% of SPX stocks trading higher upward their 3 in addition to five-day moving averages.  With VIX at 19, I await to a greater extent than volatile moves in addition to the possibility of strong short-covering moves.

*  My adjacent twenty-four hr menses in addition to 3-5 twenty-four hr menses models cause got turned moderately bullish, reflecting the short-term oversold condition.  Intermediate term measures are non at levels that we've late seen at intermediate-term lows.  I volition move watching the lineament of bounces from the oversold degree closely; if weak, I would await farther downside.  My game programme is to hold off for those bounces earlier reinstituting shorts.  I'm also opened upward to short-term buying of weakness that fails to brand fresh toll lows.

*  Pure volatility is quite high, which agency that each unit of measurement of book produces significantly to a greater extent than toll campaign than it did at recent marketplace peaks.  With expanded volatility, moves tin extend farther than nosotros would expect--very relevant to run a jeopardy management.

Thursday, August 20th

*  Volume flows were weak through the day, confirming the bearish expectations of the models in addition to the downside stock merchandise inwards the wake of commodity/China weakness.  This weakness has carried forrad to premarket trade.  Short term indicators are at levels stretched to the downside, but intermediate-term ones are not.  For example, nearly 17% of SPX shares are trading higher upward their 3-day moving averages.  That creates an surroundings ripe for a counter-trend bounce.

*  The possibility of counter-trend bounce is also heightened past times the fact that 1 of my 3-5 twenty-four hr menses models is flashing a bullish signal, the showtime inwards quite a few days.  Should nosotros run into weakness inwards today's session non confirmed past times book flows in addition to breadth, I would move willing to participate on the long side for a short-term trade.  

*  Pure volatility mensurate is elevated, also highlighting possibility of near-term bounce in addition to VIX unopen higher upward 15.  Neither are at levels associated with intermediate-term bottoms, but I make await to run into to a greater extent than volatile merchandise going forward, which has implications for sizing, stops, in addition to targets.

Wednesday, August 19th

*  Whereas Monday's marketplace could non sustain selling pressure--the number of downticks across stocks was modest--Tuesday was the reverse, with express buying.  The book current mensurate was solidly negative on the day, in addition to nosotros could non cause got out the overnight highs.  This record activity fit good with the bearish model signals from yesterday, in addition to we're seeing farther toll weakness inwards premarket today.  I croak along to doubtfulness a sustained upside for stocks every bit long every bit nosotros run into continued commodity weakness, which speaks to global economical weakness, especially inwards EM.

*  We tin run into breadth weakness inwards the number of stocks persistently trading nether their lower Bollinger Bands versus those trading higher upward (see below; raw information via Stock Charts).  Note how the difference inwards the cumulative Bollinger residue preceded the drib inwards Oct of 2014.  We are currently seeing quite a massive divergence; at that topographic point are exactly to a greater extent than stocks across the NYSE universe trading with important weakness than with important strength.

*  Next twenty-four hr menses in addition to 3-5 twenty-four hr menses models are neutral, in addition to nosotros croak along to function on the bearish swing dot from yesterday.  Game programme is to croak along to sell bounces that cannot move past times the overnight highs in addition to monitor book flows, specially should nosotros essay out back upward inwards the ES 2070s area.  Downside activity without expansion of downside record activity has been a adept brusque term dot for net turn a profit taking on the brusque side. 

Tuesday, August 18th

*  We had an impressive rally 1 time nosotros held Friday's lows inwards the ES.  My book current mensurate entirely got every bit depression every bit -250 early on inwards the morning, compared with values good below -1000 when we've hitting genuinely oversold levels.  That was a sign that, similar Friday, nosotros exactly were non seeing aggressiveness alongside sellers.  The ensuing rally has turned my adjacent twenty-four hr menses model real modestly bearish in addition to the 3-5 twenty-four hr menses models cause got turned bearish.  We are at levels of pure volatility that cause got been associated with weak adjacent 3-5 twenty-four hr menses returns.  My game programme is to brusque bounces that remain below the recent highs.  On a swing basis, I am warning for indications of to a greater extent than aggressive selling that would cause got us below the recent back upward inwards the 2070s.  That existence said, I'm also watching XLE in addition to XLB carefully for whatsoever indications nosotros could move bottoming inwards the commodity-related sectors.  That would offering of import back upward to stocks on whatsoever push clit back.

*  My adjacent query projection volition move to runway book flows inwards the premarket in addition to also at terminate of day, including the afterward market.  It is non clear to me how the flows inwards these fourth dimension periods mightiness move related to those inwards the adjacent period, but at that topographic point are meaningful flows, especially terminate of day, that could offering clues every bit to the adjacent day's trade.

Monday, August 17th

*  This article goes into depth nearly what I believe to move the greatest surgery work affecting traders. I run into a existent mismatch betwixt how traders recollect nearly chance in addition to how they really larn by their positions. It's also glib to exactly attribute this to "lack of discipline" or failure to follow plans/process.  Quite literally, traders croak caught betwixt 2 imperatives in addition to the inability to reconcile those results inwards the quandary where nosotros programme trades but don't merchandise those plans.

*  We've been seeing a reject inwards stocks making fresh novel highs for the past times several months (see nautical chart above), but we've also seen a drying upward of novel lows during the rangebound trade.  My adjacent twenty-four hr menses in addition to 3-5 twenty-four hr menses models are real modestly bearish in addition to several of my measures are moderately overbought in addition to inwards ranges where nosotros typically run into weakness.  My game programme is selling forcefulness that fails to cause got out overnight highs.

*  Friday's merchandise saw a distinct drying upward of downside volume flows, followed past times consistent though moderate buying flows.  Flows exceeding Fri levels on either side would strike me every bit important inwards establishing administration for early on merchandise this week.  When you lot run into concerted hitting of bids or lifting of offers across the stocks trading the highest volume, you lot know that major marketplace participants are putting uppercase to work.  That wasn't happening on Friday, every bit SPY book was at real depression levels.  Need to run into bear witness of meaningful book flows earlier assuming whatsoever breakout from the recent designing of declining novel lows in addition to novel highs.
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