Happy Halloween!

With positions flat, I couldn't resist -- but didn't we do this last year too?  

In any event, Happy Halloween from Market Rewind!

10.30.09 - Third Back-to-Back Trend Day

Our third trend day in a row just put in new lows for this extended cycle.  Of note, this was the first post-reversal day that hasn't featured a higher-high in some time.  It would appear the psychology today was not to let yesterday's gains be lost into month end; I know my finger was on the sell button all morning.  In any event, the directional momentum remains clear and has only been magnified on this action.

With the fifty-day moving average and uptrend channel support breached, it becomes easy to now imagine a retest of the 200-day exponential moving average below.  For the SPY, that's all the way down at $99, or another 5% below.  On the other hand, this down-cycle has run for some time now, and this could still be just one more overshoot ala October 2nd (although I'm doubting that).  Given directional volatility back on the rise, traders will just have to take it day-by-day, as usual.

10.29.09 - Trend-Day Reversal

This is just the sort of v-shaped turn that the bulls wanted to see at key support, and we are just as much in trend-day mode to the upside today as we were to the downside yesterday.  Speaking of which, volume is slightly down from yesterday, which I also see as bullish as it makes yesterday look like capitulation ahead of the GDP report.  We should be able to get more than a day of gains out of this... but with intermediate indicators rolled over, in my opinion this can only be treated as a bounce for now.

Never Investment Advice

10.28.09 - A Failure to Bounce

We had good reason for a technical bounce today, but the fundamentals chose not to comply and the S&P500 is now challenging its fifty-day moving average in an apparent down-trend day. The VIX is steadily climbing on highly negative cumulative tick, wildly outpacing down volume, and down-pegged decliners. I will not put more long exposure at risk until this cycle plays out on a volume basis (it's still building into the down move, a recent "bull" market first).

10.27.09 - Pause in the Decline

The market is running sideways in range-day fashion with up and down volume fairly well matched.  Tick has demonstrated a slightly more bullish bias, but only marginally so, our sentiment indicator is weak, and the VIX continues to run relatively hot.  We are oversold in a short-term downtrend, but there is otherwise no indication of where we go after this pause and neither direction would surprise, [add 12:57 EST] although I'm now leaning towards more downside.  Meanwhile, I'll be keeping an eye and ear out for those Treasury auction results.

A short while ago I did a review of Connors Research's new book "High Probability ETF Trading".  I understand from his staff that they are now offering a signal service based in part on that book.  I don't receive anything from Connors for that reference (other than from Amazon should you buy the book), it's just good stuff.

10.26.09 - Swan Dive to the 20-DMA

That was quite a tradeable dive to the twenty-day moving average on the SPY ($107.10), and S1 levels for the QQQQ and IWM, respectively.  Tells included the Financial's under-performance, the cooling of the AD line and Tick, and finally the fast break higher in the VIX as price slammed the daily pivot.  At the mid-day we have found temporary support at those levels and are attempting to stabilize.  By the same token, the SPY is struggling to break back S1, so we'll see.  This leaves us a bit oversold even as the intermediate MACD and 52 Week Highs - Lows look to have rolled over.

ETF Rewind - Week 43 (10/23/09)

(Click Image to Enlarge/ Glossary)

Equities held flat last week with the S&P500 (SPY) finishing down -0.7%. Interestingly, more good economic news on Friday was not enough to push the market back higher as Energy and Materials pulled back fairly hard on dollar strength. Intermediate-term technical indications look set to roll over, although it still feels early to make that call as what we've seen so far could still be categorized as choppy consolidation.

Meanwhile, Small-Cap Growth (PWT) and the Transports (IYT) look best positioned for at least a comeback bounce, though Dow Theorists may feel differently about that disparity....

Week Forty-Four of 2009 features a very busy economic calendar featuring Third-Quarter Gross Domestic Product on Thursday:

• Yahoo! - U.S. Economic Calendar
• Yahoo! - U.S. Earnings Calendar

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 service. 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 powerful portfolio management tools.

Enjoy your weekend!

Never Investment Advice

10.23.09 - Choppy Top

While the S&P500 continues to hold at its first support level (say $108.25), internals likewise remain quite bad.  Therefore, save the perennial buy-the-close behavior, I have to assume we continue to struggle or lose ground and break that support in the afternoon session.

Never Investment Advice

10.22.09 - Bots Defending 500-Minute EMA

Trade Bots look to be hard at work defending the SPY's 500-Minute EMA.  I wonder if, in the day's ahead, yesterday's fast break on the Bove/ Wells Fargo downgrade may embolden bears once more after this preternatural run-up.  Nevertheless, I still see a good chance based on internals stabilization of a break higher just now to the Pivot ($108.75) with the 5-DMA ($109.15) providing next resistance should price action really get motivated.

Never Investment Advice

10.21.09 - Positive Sentiment Prevails

Cumulative Tick and other internals aligned for a quick trip back to new highs after the premarket gap lower. At this point, I assume that the VWAP will therefore continue to provide support and perhaps act as a launch pad for a new assault on those earlier highs.

Militating that assumption, is that I don't like what I'm seeing in the Semis one bit, and the AD line seems to be struggling -- so we'll see. We are borderline overbought... not too bad, neutral really. However, I think it would have been healthier for the market to put in a more moderate advance to slightly down performance on the day if it is to maintain its upward energy.

10.20.09 - A Baked Cake?

Maybe to a degree. Price has faded hard from the open, but is holding in well at the five-day moving averages of the SPY and QQQQ. IWM isn't fairing quite as nicely. As we are discussing in the chat-room, we are all now conditioned to buy into the close in-spite of the dour internals. How long until that Pavlovian evolution proves fatal?!

Two Simple Relative Strength Rotation Models

With markets roaring back and the SPY having broken $110 for the first time in over a year just moments ago, it seems that Relative Strength Rotation methods have come back into vogue.

There are literally dozens of ways to define relative strength, and it is important to recognize that different computations will serially and stably outperform their peers during various behavioral epochs. Furthermore, inflection points can be harsh using this method. Various smoothing methods, use of multiple time frame references, a modicum of forced diversification, and standard money management techniques can all be a big help with that. All in all, it's a hard strategy to beat over time for those interested in always being invested.

Below I present two very basic mechanical trading systems employing rankings of current price divided by variously weighted simple moving averages among the selected ETFs. (The specific relative strength readings for which are provided every night in ETF Rewind* under the "Weighted Strength" column for nearly 200 tracking ETFs.)

Asset Class Rotation

The chart below indicates the equity curve that would have resulted from rotating into the single top performing major asset class ETF among the SPY, EFA, EPP, EEM, DBC and AGG, as ranked according to relative strength, then re-balancing weekly on a simple/ non-compounded basis, with no friction/ trading costs assessed.

The compound average annual growth rate for the nine-year study period would have been +10.7% with a simple Sharpe Ratio of +0.5 and a maximum peak-to-valley draw down of -19.4% (versus the S&P500's -51.8%). The equity curve is not optimized in any way, and involves no use of leverage or shorting: this is merely an extremely simple macro-asset-class switching method.

Currency Rotation

As currencies have been highlighted in the news lately, attached is a graphic highlighting another simple strategy rotating into the top two performing Currency ETFs among UUP, FXA, BZF, FXE and FXY, re-balancing weekly on a reinvested/compounded basis, with no friction/ trading costs assessed.

The compound average annual growth rate for the three-year study period would have been +14.2% with a simple Sharpe Ratio of 2.4 and a maximum peak to valley draw down of -8.9%.

Conclusion

At the very least, relative strength systems can provide natural stops for equity traders and additionally inform them as to which classes, sectors, styles and countries are running hot or cold in the current market environment. At their best, they can make for powerful trading systems in their own right.

[Past Market Rewind Trading System Posts]

Never Investment Advice

10.19.09 - Up, Up and Away

Lots of green on the screen to start off the new week, save Treasury Bond Rates and the beleaguered US Dollar.  Internals are showing impressive strength, though I note that the Advance - Decline line is taking a breather at the mid-day, and that daily time-frame momentum indicators are beginning to show mild divergences relative to price action.  It will be interesting to see if SPX 1,100 will provide any psychological cause for pause in this powerful up-trending market.  Why do I doubt that?

ETF Rewind - Week 42 (10/16/09)

(Click Image to Enlarge/ Glossary)

Earnings gyrations and all, the S&P500 (SPY) still managed finished the week higher by another +1.5%. In fact, all of the major sectors were higher with the exception of the Financials (XLF) and Real Estate (IYR), which were just slightly off beat. Generally speaking, however, Friday's mild down move has the markets looking neutral to only slightly overbought, depending on the index.

Week Forty-Three of 2009 features a the following reporting calendars:

• Yahoo! - U.S. Economic Calendar
• Yahoo! - U.S. Earnings Calendar

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 service. 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

10.16.09 - Heavy Down Volume

Price has found support in the mid-SPY $108 region near the Wednesday lows and just above the five-day moving average.  Market Sentiment is holding in there, but internals are pretty bad, as you might imagine.  In particular, down volume is hugely outpacing up volume, so for now I assume we will continue to struggle to surpass the VWAP and 500-minute moving averages in-turn through the balance of the day.  I'll be keeping a close eye on cumulative tick for any change in that regard.

10.15.09 - Mild Recuperation Belies Weak Internals

Title says it all... We have largely recovered from the preopen gap lower, but internals are flat to weak at best.  News risk looks to continue to predominate trade, and, save the pattern of higher lows and highs on a falling VIX, which I don't wish to diminish, we otherwise look to be well within a range-day modality.

10.14.09 - Price Resistance on Strong Internals

I note that the SPX is struggling to surpass 1,085 at the mid-day even though internals are looking very strong and my Market Sentiment Indicator has pegged 100%.  I therefore suspect for now we could still leg up higher later in the day, maybe off that VWAP tag.  The market is obviously very strong, but I wonder what will happen once we close the early October gap from one-year ago.

10.13.09 - Earnings Volatility

Markets are mixed at the mid-day with relative optimism in the NASDAQ100 headed into the Intel report.  While volatility has certainly picked up, it still looks like the range has been set for the day, though maybe we push that SPY pivot (say $107.65) one more time before session's end.

Update:  INTC beats after the close on both ends for an intersession breakout.  We'll start to see what the banks have to say in the morning.

ETF Rewind - Week 41 (10/09/09)

Some personal time over the weekend has this post out late, but I wanted the main graphic up for continuities' sake.  Note how short-term overbought we were as of Friday's close not to mention today's gap higher, which is currently threatening to close late into the afternoon session. It should be an interesting trading week as we head into heavy earnings reporting.

10.10.09 - Gap + Consolidation

The opening gap has held well ahead of the onslaught of earnings this week.  Although Up Volume is hugely outpacing, Total Volume is nearly non-existent and it seems price has hit a wall for now.  Thanks again to Leo for hosting the room last Friday.  Just now there are some very large down-tick readings.  We are very overbought, we'll see.

10.09.09 - Gone Fishing

Good trading to you and see you on Monday.

We are slightly overbought at this point.

Thank you leo for hosting the chat room tomorrow!

 

10.08.09 - Clean Downtrend Channel Break

The break away on strong Tick and AD on a moderate VIX after an early morning first-reaction buy at the 500-ema  and then again at the VWAP made this look like a trend day fairly early on.  And now we've definitively broken the down streak from the late September highs, and intermediate-term indicators are firmly pointing higher.  That said, we are starting to push into short-term overbought status.  In past rallies during this bull recovery run, of course, such readings have held for extended periods.

10.07.09 - Range Day Consolidation with Weak Undercurrents

After two days of significant gains, price is taking a breather ahead of earnings season.  However, I note a strong preference for safety over risk today, keeping our Market Sentiment readings far below the half way mark.  Nevertheless, price is running laterally as are most internals, and Up & Down Volume are well matched.  Thus, I'll play it as a range day for now even though those sentiment readings have me cautious with longs.

10.06.09 - Trend-Day Part Deux

Internals are showing very smooth and aligned trend strength for the second day in a row with today's gap and go.  This brings us back up above the majors' respective twenty-day moving averages, which may again act as support.  Volume is better than yesterday, but still underwhelming.  Even as the move is pushing us into the early stages of overbought status, recall how many extended upside runs we have had lately.  This does, however, certainly put increased pressure on earnings in the week ahead.

Update: Obvious trend-day failure... keep an eye out on the sentiment indicator to the right.  Looks like R1 saves the day with a couple huge tick readings coming in just now.

10.05.09 - Smells Like Trend-Day Spirit

Our Mrkt_Sentiment dial swung to 100% early in today's trade, suggesting that oversold conditions may finally get bought. Strongly outpacing Up Volume soon confirmed, and the Advance - Decline, Cumulative Tick and Vix action then fell into line and now all continue to suggest upside trend-day action.

ETF Rewind - Week 40 (10/02/09)

(Click Image to Enlarge/ Glossary)

The markets continued their post-September 22nd struggle into difficult economic reports and ahead of third-quarter earnings.  In this respect, early October feels much like early July, the difference being quarter-over-quarter results could prove more difficult this time around.  The S&P500 (SPY) ended last week down a moderate -1.9%, with only the Consumer Staple (XLP +0.3%), Commodity (DBC +1.6%) and Treasury (TLT +1.4%) complexes posting advances among the tracked ETFs.  In any event, equities are looking as short-term oversold now as they looked overbought just a couple of weeks ago.

Week Forty-One of 2009 features a much lighter economic calendar, but also the advent of third-quarter earnings with Alcoa kicking off proceedings next Wednesday, as follows:

• Yahoo! - U.S. Economic Calendar
• Yahoo! - U.S. Earnings Calendar

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 service. 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

September 2009 Rewind - Back to School for Bears

Last month I questioned whether equities were "Running on Empty," and perhaps I could pose that very same question this early October after a rash of less than stellar economic reports.  Nevertheless, September undeniably put in more healthy returns for the year with the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices up +3.57%, +2.27% and +5.77%, respectively.

Mid-Caps, Industrials and Technology led the charge, while Health Care and Large-Cap Value stocks lagged somewhat, although clearly all of the tracked indices came out to the positive.  After the strongest quarter in decades and third-quarter earnings just ahead, will the bull's good fortune continue to run?

Sentiment: Positive
Volatility: Narrow (VIX 23-29)
Direction: Higher

[Click to Enlarge/ Weekly ETF Analyses]

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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.

10.02.09 - Now Q3 Earnings Loom

Equities are officially very oversold with the S&P500 sitting spot on its fifty-day moving average, which I expect to provide initial support for either a bounce or pause (feels like the latter just now).  Internals are mildly negative along with sentiment, but in range-day formation for the time being.  Have I ever mentioned I hate narrow ranges?  Nevertheless, it is good to see the QQQQs outperform.

Lastly, I do wonder how much of this heaviness relates to next week's first round of Q3 earnings reports as much the recent economic readings ala early July (also the last time we kissed the 50-dma, coincidentally).  It occurs to me that Q3 vs. Q2 is going to be a tough comparison with sales still slow and costs largely removed from corporate structures earlier in the year.  On the other hand, I'd expect today's poor jobs report to translate to extended easy money policies as a consolation prize.

10.01.09 - Down-Trend Day

Internals are highly negative and "smoothly" trending, suggesting follow through into the pm session.  However, I will grant that we are finding some support just here at the mid-day in the low to mid SPX 1,030s.  Next support levels look to be between 1,010 and 1,020.  This is the first day since I've posted the Intra-day Sentiment indicator that is has been pegged to zero -- very bearish indeed.  I also note that the intermediate MACD has been rolled over for several days now, and that 52 week new highs - lows has been moving down even in this easy-to-beat period.  Meanwhile, this does put us very near official oversold territory, so keep an eye on that tick for confirmation on any sign of a reversal.