Monday, August 31, 2009

08.31.09 - Asian Contagion

Internals are highly negative even though price has thus far found a floor near SPY $102 (10-DMA).  VWAPs are ruler flat and range is fairly narrow (same same with FXI).  On the other hand, so far all these intraday pullbacks have been bought into the close.  Clearly traders have to be wary of a break either direction.

Saturday, August 29, 2009

ETF Rewind - Week 35 (08/28/09)

(Click Image to Enlarge/ Glossary)
US Equities spent the week going sideways with the S&P 500 (SPY) finishing higher by +0.4%. The largest gainer for the week was Agriculture (DBA +3.2%), while Liquid Fuels suffered a small decline (DBE -1.2%).  Speaking of which, DBA, DBP, XLK and IYR continue to look somewhat overbought in spite of last week's pause. 

Among the broader indices, while intraday performance showed early signs of potential exhaustion, it is still not clear whether this is a short-term tradeable top, or another consolidation period before yet another push higher.

Week Thirty-Six of 2009 features a busy economic and reporting calendars, including the Friday Jobs report, as follows:

If you are interested in a significantly more thorough version of this weekly summary, consider taking a look at Market Rewind's nightly ETF Rewind Pro (3-Day Trial). In addition to coverage of nearly 200 ETFs across twelve major asset classes, you will find three model portfolios, daily market signals and commentary, pairs trading and various portfolio management tools. Enjoy your weekend!

Never Investment Advice

Friday, August 28, 2009

What's Working in Pairs?

Professional traders are always asking their trade candidates "What have you done for me lately?" The same can be said of their prospective stock and ETF pairings (more background reading here).

When it comes to trading pairs, inter-market relationships are often ephemeral according to current economic themes and collective trader focus. Therefore, it is important to periodically run comparative rolling profitability analyses for each prospect.

In that regard, below are six-month, simple returns for twelve major ETF sector candidates (upper-right where +1.0 = +100% return). The bottom-left intersecting cells measure the linearity of the hypothetical return series referred to above.

During the course of this recent rally, it's plain to see how pairs based on the strongly moving and volatile financial service sector have predominated the leader-board.

ETF Rewind Pro allows subscribers to run custom back test reports optimized for either profits or linearity (or both!) of returns just like this, including current trade signals for up to 780 pairs candidates at a time. What have your trade candidates done for you lately?

08.28.09 - Olde Fashioned Gap Fill

Apparently too many successive days higher and other short-term overbought oscillator indications became too tempting not to sell into on the morning gap higher. All internals look fairly negative and cumulative down volume is now joining in the party. I'm not looking for anything too severe, but at the mid-day I would have to conjecture a close below VWAP. At the very least, be on the lookout for recovery resistance between there and the five-day moving averages.

Never Investment Advice

Thursday, August 27, 2009

08.27.09 - Buying Opportunity of a Lifetime...

OK, I'm just kidding -- but that opening dip did get bought fairly quickly and we have recouped half of the a.m. losses. From an internals perspective, the V-recovery was confirmed with precision. Note the confirmed turn in the AD, VIX and Cumulative Tick lines at 8:30 a.m. on my charts.

While it looks bullish just here, the daily highs down-trend channel remains intact and this is day three of prospective lower highs and lows. For the p.m. trade, I'll be looking to see whether or not that inclining 5-DMA can act as support now that we are back above it (cyan dashed line).

Update: 5-DMA held and we were off to the races. With two hours to go, although internals are still net negative on an absolute basis, their slopes are highly positive.

Wednesday, August 26, 2009

08.26.09 - AM Strength PM Weakness

Third day in a row. Cumulative Tick, Down Volume and the AD line all suggest a lower close as price pauses beneath the VWAP. On the other hand, certainly no one is running for the exits like the days of yore. Just need to watch how those internals evolve over the course of the day. The slow pace of movement will keep traders guessing whether this is a tradable top, or yet more consolidation for the "inevitable" SPX 1,050+ print.

Tuesday, August 25, 2009

08.25.09 - What's Missing from Today's Trade?

(Other than my post going up late?) Energy is sorely lacking today in spite of the morning's economic catalysts. Very short-term (I'm not a perma-bear -- really!), the market remains overbought and it seemingly "needs" to rest in time or price. With a few hours to go, I see the Advance - Decline and Cumulative Tick lines rolling over. If price follows, it would be a small change in character with closing weakness as compared to prior sessions.

Monday, August 24, 2009

08.24.09 - Day Five

We saw some Friday momentum carryover this morning on the overseas lift. However, internals appeared to have peaked about two hours into the session. Meanwhile, price is sitting at its volume weighted average, which as been more or less evenly spread throughout the day. Until internals see improvement, I assume price will continue to digest this five-day move.

Saturday, August 22, 2009

ETF Rewind - Week 34 (08/21/09)

(Click Image to Enlarge/ Glossary)

After a rough start to the week on Asian market weakness, US equities shook off declines for another heady week of gains, with the S&P 500 (SPY) ending higher by another +2.2% for fresh 2009 highs. The largest gainer for the week was Mid-Cap Value stocks (PWP +3.3%), while Agricultural Commodities suffered a mild decline (DBA -1.6%).

Week Thirty-Five of 2009 features a very busy economic and reporting calendars, including Second Quarter Preliminary GDP readings on Thursday, as follows:
Short-term oscillators are again headed into over-bought status virtually across the board after Friday's breakout -- but of course that has not mattered in months and it looks like Goldman Sachs' SPX 1,050 target will be in the cards soon enough. Nevertheless, I suspect that if those same oscillators run too much farther, it may tempt some brief profit taking. Enjoy your weekend!

Never Investment Advice
If you are interested in a significantly more thorough version of this weekly summary, consider taking a look at Market Rewind's new nightly ETF Rewind Pro service (free trial). In addition to coverage of nearly 200 ETFs across twelve major asset classes, you will find three model portfolios, daily market signals and commentary, pairs trading and various portfolio management tools.

Friday, August 21, 2009

08.21.09 - Big OPEX Move

Having severe internet difficulties since mid-morning. Today feels like July 15 all over again. Will see if this posts, then add more.

Update -- Well, post went up, but still having trouble with TS -- so I'm flying blind for now. Last I looked, it appeared to be a trend day, but I see on Yahoo! Finance just now that we are facing strong resistance just under SPX 1,025. Maybe we pop again after the mid-day lull, but I suspect this four-day move will prove a tempting fade next week.

Long-Term View:

Thursday, August 20, 2009

08.20.09 - Third Plus Day

Interesting day, not really surprised to see more follow-through, but this does make us a little over-stretched even going into OPEX, and just under the recent roll over highs downward trend-line. However, that's on the daily time frame. Sticking with the intra-day, internals look strong although R1 has proven stiff resistance for the SPY (say $100.90) and there has been a strong divergence between the Financials and the Semi's. With cumulative tick continuing to run, though, perhaps we can push through after the mid-day lull.

Never Investment Advice

Wednesday, August 19, 2009

ETF Rewind - Addition of Bounded DV-2

Well, I was working on the ETF Rewind today, and -- as happens from time-to-time -- a new indicator just sort of jumped on into the spreadsheet. ("Good Lord!", my subscribers will no doubt write...)

For those of you who have been following the good work over at CSS Analytics, this is the bounded version of the DV-2 oscillator, as described for us mere mortal earthlings quite well over at MarketSci (the unbounded version has been included for a short-while now).

Here again are the two articles that I recently posted using the unbounded version to illustrate a point or two:

08.19.09 - Gap Plus+

The markets immediately recovered from the opening gap, making SPX 980 a clear line in the sand and important future level to watch. It would appear that the shorts then covered hard on this low volume day, pushing price all the way back up to the five-day moving average, which is proving a harder nut to crack. The early weakness in internals has also turned the corner, suggesting to me for now that we end in the upper half of the daily range, if not higher.

Postscript: Both the VIX & SPY moved higher today... a brief prior study here.

Never Investment Advice

Tuesday, August 18, 2009

08.18.09 - Minor Recovery Attempt

The market is making a minor recovery attempt against yesterday's highly oversold readings. Internals are well aligned to the upside and all of our sentiment ratios are firing green. This price action brings the SPY right up to its twenty-day moving average. However, tomorrow will be the real test for resiliency, in my opinion, with momentum indicators having recently rolled over.

Never Investment Advice

Monday, August 17, 2009

Sixes and Twelves - The Rest of the Story

Okay -- by request -- here is the Paul Harvey "Rest of the Story" from the equity picture painted yesterday...

08.17.09 - "The Correction"

... we have all been waiting for? I'm a little late to post at the mid-day, but hey, nothing has changed. Equities thumped lower 2-3% early on across the board and have mostly flat-lined ever since -- albeit on highly negative cumulative tick, down volume and advance-decline action.

There is always a chance we could see some opportunistic end-of-day buying, as has been the recent pattern. However, these internals should be a strong caution flag -- be wary the falling knife! (Ooh, been wanting to say that again for months....!)

Never Investment Advice

Sunday, August 16, 2009

Sixes and Twelves

I believe that the graphic excerpt below from the nightly ETF Rewind speaks for itself. A pretty stunning contrast across most equity ETFs by any account! (Table excludes bond, currency, commodity and alternative asset classes also tracked in the Rewind.)

ETF Rewind - Week 33 (08/14/09)

(Click Image to Enlarge/ Glossary)

Markets took a breather last week with the S&P500 (SPY) down about forty-one basis points. In fact, only the safety plays, such as Utilities (XLU), Consumer Staples (XLP), and Healthcare (XLV), were able to record slim advances.

Week Thirty-[edit: Four] of 2009 features the following economic and reporting calendars (yes, there are still big-name earnings report to come!): Most short-term technical indicators are neutral after the late-week pullback. It will be curious to see how the often positive options expiration week expectancy plays against mildly waning price momentum.

Never Investment Advice
If you are interested in a significantly more thorough version of this weekly summary, consider taking a look at Market Rewind's new nightly ETF Rewind Pro service (free trial). In addition to coverage of nearly 200 ETFs across twelve major asset classes, you will find three model portfolios, daily market signals and commentary, pairs trading and various portfolio management tools.

Friday, August 14, 2009

08.14.09 - Down-Trend-Day

Internet problems are slowing me down today, but fortunately the market is in an identifiable down-trend-day with heavily negative cumulative tick and advance - decline performance on strong down volume. I still expect to see at least SPY $99 [edit: incorrectly had $98 earlier](near the twenty-day moving average) sometime ahead, we'll see. In spite of the strong negative alignment for today, I'll be equally wary of the possibility of an end-of-day recovery attempt -- so I'll be trailing stops on shorts just in case my connection drops out again!

Thursday, August 13, 2009

08.13.09 - Volume? What Volume?

Internals are slowly gaining strength at the mid-day after a highly tradable opening range. However, the nascent strength has yet to be much reflected in price action and cumulative tick, while positively sloping, remains net negative. Volume is about the lowest I can recall seeing in a very long time, so as boring as this lull is, trader's have to be prepared for the possibility of a fast break either way.

Never Investment Advice

Equity Curve Surfing

Here is one last look at the unbounded DV-2 strategy by CSS Analytics to demonstrate the larger concept of Equity Curve Switching. From the last post (here), I took the two best equity curve results, namely those from the Raw DV-2 (blue) and the Opposite-Direction (purple) strategies, and then overlaid a simple switching routine based on the higher short-term rate of change among the two.

The result is the orange equity curve (simple, frictionless returns). Obviously, this type of system-level trading overlay will work best when the alternative curves present persistent offsetting periods of over/under performance.

In that last follow-on DV-2 post, I referenced the importance of "knowing your trading environment." Now imagine a similar system to the one described above that perennially checks and compares the performance of basic trending, break-out and mean-reverting strategies. In this regard, a good recent companion thought piece to this post may be found over at MarketSci on the State of Mean-Reversion Systems.

I've about beat the unbounded DV-2 indicator to death at this point (with respect David)! In the future I will work with the bounded variant.

Note: This post was originally published as an ETF Rewind 'subscriber-first' article delivered over the weekend. This will be my new practice to provide added value to my members.

Wednesday, August 12, 2009

August FOMC Statement Red Line Comparison

Red-lined comparison of August versus June FOMC minutes. Also see past Fed-Day reactions on this nifty little site. [Click to enlarge]

08.12.09 - Fed Levitation & Chat Guests

Today's pre-FOMC announcement looks a lot like last June's here. All internals look very bullish, but obviously anything goes after the announcement. Frank of Trading the Odds kindly graced our (gratis) chat room earlier today and made the following observation:

"The problems for the shorts today is whenever ES closed lower the day prior to the FOMC announcement, and posted an intraday high of at least +1.25% on the FOMC announcement day, chances are high (14:5) that the ES will trade higher during the final hour of the session as well (19 occurrences, max. loss -0.75% (gain for a short)."

Bill Luby also made some excellent remarks on leveraged ETF plays. Maybe worth reviewing the chat history here. (sign in and go to highest numbered post, then work backwards in time) Maybe we will see you in the room sometime? I'll leave it at that for now and post the statement comparison post right after the announcement.

Tuesday, August 11, 2009

08.11.09 - Back to Back Down?

Could it be? The SPY is below its 5 and 10-day moving averages, thought at this point the 20 still seems like asking a lot as a downside target ahead ($97.90). On the ETF Rewind real-time movers list, I see UMM (Major Metro Housing -12.5%) is the big loser with VXX (Short-Term VIX +4.0%) in the winner's circle. Cumulative Tick, Advance-Decline and Down Volume all look quite bleak, and traditional MACD has finally rolled over. Will it be kiss and go from here into FOMC day, or a multi-day correction?

[ADD:] Nice trend day identification metrics by Leo from the chat room [here]. He is an accomplished chartist/technical analyst -- highly recommended site.

Monday, August 10, 2009

08.10.09 - Just Chillin'

After a mixed European/ Asian overnight trade, US markets have moved down between 50 and 100 bps. Relative action in the Semi's (SMH), Discretionaries (XLP), and Emerging Markets (EEM) suggest a little risk being taken off the table. Internals are weak, but not breaking down by any means. Lots of bond inventory coming to market this week, and we have the FOMC statement on Wednesday.

Just Sayin'

Saturday, August 8, 2009

Trading Systems Like a Stock

I promised this quick follow-on study to the DV-2 indicator analysis (CSS Analytics) for our subscribers about a week ago. However, I believe it makes some important points for my regular readers as well -- so here it is. As a refresher, here is the introductory article I posted on the indicator at Market Rewind. This study note compares simple alternatives to trading the unbounded statistic as-is.

Alternate Systems

As you will recall, the most basic DV-2 system is to fade the daily signal at the close (go-long negative results; go-short positive results). Here, I looked at six alternatives to the basic system, including: 1) waiting for additional days of signal, 2) waiting for a reversionary 'hook' back towards the mean, and 3) leg-in variations on the two. Also, I compared the raw system results with the ultimate reversion system, merely trading the opposite direction of the prior day's close. Clearly, such on and off-systems will perform best for methods that experience sustained moves.

As shown above, the raw system actually performed the best (117% Simple Return, Rank #1), adding significant alpha to just trading the opposite side (84% Return, Rank #2), or any of the alternatives, for that matter. While the first conclusion is key in determining model value, the second was a bit of a surprise. The reason I believe this to be the case, is that the system is so sensitive and short-term oriented, that it cannot capitalize on delayed entries like less frequent reversion swing methods with more aggressive exit targets. Basically, you are always better going all-in on the first trigger.

Indeed, the next best performer (other than just taking the opposite of yesterday's trade), was to trade 50% immediately, then the other 50% of available capital the first day the indicator began to come back to the zero line and holding until it did so (78% Return, Rank #3). However, the severity of draw-downs were somewhat mitigated by this later method, which brings up the next major section on "knowing your trading environment."

When to Trade the DV-2 (or any) System

In the introductory article reference above, some of the key take-aways were:
  1. Know what environment you are trading in (reverting/ trending).
  2. Trading methods themselves revert (addition by David V.).
  3. Track your methodology's equity curve like it was a stock.
Here, I collapse those all into point three. My first method for the visually inclined, was to effectively "hide" the right-hand side of my charts and scroll forward, looking for either extreme reversals or lower-low patterns in the equity curve. When the system appeared to be breaking down, I drew a trend line off the lower highs. Scrolling ahead, I then looked for either an upward break of that line, or a pattern of higher-lows and higher-highs. In the brief period of time reviewed, note that three of the five instances "turned the system back on" at higher equity levels. However, there is something to be said for sleeping well at night!

In this regard, the second method overlays a Parabolic Switch And Reverse (PSAR) indicator onto the equity curve (and there again, limitless variations are possible). Using that mechanical overlay to turn the DV-2 system on and off, about 80% of gains were preserved while avoiding extended draw-down periods. Due to the extreme whip-saw reversal early last year, using the PSAR to actually reverse signals was not effective. On a longer-time frame; however, I strongly suspect it would have been. Clearly, systems with extended performance epochs will do best with off-on overlays like this.

ETF Rewind - Week 32 (08/07/09)

(Click Image to Enlarge/ Glossary)

The S&P500 (SPY) continued its relentless advance by another +2.4% last week for a four-week increase of +15.1%. However, the big winners were really the underdog Financial (XLF) and Real Estate (IYR) sectors on heavy rotation back into those arenas. Even so, the best forward stability has been demonstrated by the Dow (DIA) and Consumer Discretionary (XLY) stocks, whose 'Risk Reward' (Omega) distributions have stood head and shoulders above the rest over the course of the last month.

Week Thirty-Three of 2009 features yet another very busy economic calendar, including the Federal Open Market Committee statement:

I find it remarkable below how the continuous strength of late vis-a-vis overbought RSI readings was corrected so easily after the very mild pause in the advance earlier this week.

Lastly, while we had a bullish response to the Friday jobs report, imagine what the reaction would have been a few weeks ago. Also, the leading NASDAQ's recent under-performance continues and there have been fewer new high participants during the last several days. While I'm all for trading what I observe -- and that has certainly been bullish -- the short-term bearish divergences continue to pile on.

Like the stats and coverage provided by this Weekly Rewind? If so, be sure to check out our daily ETF Rewind subscription service, and have a terrific weekend!

Never Investment Advice
If you are interested in a significantly more thorough version of this weekly summary, consider taking a look at Market Rewind's new nightly ETF Rewind Pro service (free trial). In addition to coverage of over 170 ETFs across twelve major asset classes, you will find three model portfolios, daily market signals and commentary, pairs trading and various portfolio management tools.

ETF Rewind - Video Overview


Friday, August 7, 2009

08.07.09 - Jobs Up Trend Day

On the heals of our first back-to-back down series in nearly a month, such as it was, we are putting in what looks to be another powerful up trend day on the better-than-expected jobs report. While I note a modicum of resistance at SPY R2 (say $101.70), a rising dollar and an inability of 52-week new highs to expand, cumulative tick is nevertheless rocketing higher at the mid-day and up volume has been relentless. As has been the case during the last several days, the Financials (XLF) and Real Estate (IYR) continue to lead the charge.

Thursday, August 6, 2009

08.06.09 - Resiliancy at the 5-DMA

The SPY has been twice caught by its five-day moving average, probably indicating system traders/ bots being aggressive in closing short-targets there. Otherwise, most internals are fairly weak save Up Volume, which I think is still being boosted by rotation into the Financial (XLF) complex, although I note that Discretionary Retailers (XLY) are also doing relatively well today in spite of the earlier reports. On balance, the more times the 5-dma is challenged, I'd suggest it becomes increasingly vulnerable to a break -- though obviously tomorrow's formal jobs report holds the key for the week.

Wednesday, August 5, 2009

08.05.09 - Up Volume Building

After the initial ISM/ADP decline, I noticed that Up and Down Volume really kept fairly good pace with each other in spite of the dour price action. The spread has been building as the Advance - Decline line has coincidentally flattened, though I'd still like to see stronger Cumulative Tick before committing anything to the long side. The VIX has risen a touch, but remains in the 25 handle. Addition: Forgot to bring attention to XLF, up nicely on the day. Also, 52-week new highs - lows is peeling back for the second day in a row.

Tuesday, August 4, 2009

08.04.09 - Three Days / Nine Months

As huge as this run has been, it's a bit comical to compare it -- along with the last nine month's trade -- to those three fateful days in early October of last year (see below). Back to the present, after a minor opening dip, internals have been steadily strengthening as we reach new rally highs and cumulative tick goes net positive. Price action has also been very steady off the open within a narrowly defined 45 degree up-slope.

Monday, August 3, 2009

08.03.09 - Strong Start to New Month

We remain in the bullish end/beginning of month period and the SPX has celebrated by punching through 1,000. At the mid-day, although we are seeing some resistance at SPY R2 (say $100.10) -- Cumulative Tick, Up Volume and the Advance-Decline line all looking quite strong.

The only cautions are that we are short-term overbought (again), and on any bad news (if any ever arises), money managers may feel less nervous about upside participation this early in the month. With all those parentheticals, reads like a prescription to buy-and-hold, doesn't it? By the way, how many gaps below does this make?

Sunday, August 2, 2009

July 2009 Rewind - Moon Shot

To help celebrate the fortieth anniversary of mankind's first steps on the moon, equity markets did a moon shot of their own. Alright, better-than-expected earnings and economic reports may have led us one small step in the right direction.

Last month, the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices recorded rarified performances of +7.41%, +8.58% and +8.54%, respectively.

It seems like a distant memory with respect to the early downside now, but really it was a bit of a Jekyll & Hyde month -- starting with talk about the need for more governmental stimulus and a prospective head and shoulder (H&S) pattern before the sudden reversal to the best July for the Dow and S&P500 since 1989 and 1997, respectively. In fact, since a brief peak below that well observed H&S, we have seen nothing but up.

News flow ranged dramatically from the worst unemployment numbers in 26 years, GM's emergence from bankruptcy, CIT threatening bankruptcy only to have consortium bridge financing offered, to improving home sale, gross domestic product and other economic reports, and a very high ratio of earnings beats (71%).

Sector-wise, the reflation/risk trade was back on with Materials (XLB) and Consumer Discretionary stocks (XLY) leading the pack. Style-wise, Small-Cap Value (PWY) stocks were again the biggest winners. While most trader's aren't expecting a major pullback ahead, after a four-and-a-half-month +46% giant leap off the bottom, a slowing in the pace of advance would appear to be in order for the month of August.

Sentiment: Positive
Volatility: Narrow (VIX 23-27)
Direction: Strongly Higher

[Click to Enlarge/ Additional ETF Analyses Posted on Market Rewind]

The Style-Box was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV). The Sector-Ribbon was calculated using the following Select Sector SPDR™ ETFs: Materials (XLB), Industrials (XLI), Energy (XLE), Staples (XLP), Discretionary (XLY), Financials (XLF), Technology (XLK), and Healthcare (XLV). The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

ETF Rewind - Week 31 (07/31/09)

(Click Image to Enlarge/ Glossary)

The S&P500 (SPY) tacked on another +0.8% gain last week for a four-week increase of +10.0%. Looking at last week's table above, it is readily apparent how: a) the risk trade has been back on; and, b) how we remain intermediate-term overbought even as very short-term indications have come nearly back to normal.

Week Thirty-Two of 2009 features another very busy earnings and economic calendar, including the Friday Job's report:

While we remain in this largely abnormal market environment and as a follow-through to the most recent analogous periods prediction, the twenty-week range forecast for the SPX has once again been lifted from lows of 930 to highs of 1,080 (shown below). It's that March 2003 match that particularly caught my eye. Have a Terrific Weekend!

Never Investment Advice
If you are interested in a significantly more thorough version of this weekly summary, consider taking a look at Market Rewind's new nightly ETF Rewind Pro service (free trial). In addition to coverage of over 170 ETFs across twelve major asset classes, you will find three model portfolios, daily market signals and commentary, pairs trading and various portfolio management tools.