11.30.09 - VIX still Rising

The VIX has continued its move higher on conflicting Dubai and retail sales reports and interpretations, leaving the Russell 2000 (IWM) down nearly a full percent.  Down Volume is slightly outpacing Up Volume, Cumulative Tick is very negative and the Advance - Decline line has been vacillating in direction while maintaining a negative net disposition.  That said, selling pressure "feels" light, SPX 1,085 has provided sound support, and price action may yet be saved by turn-of-month seasonality -- still it will be an upward battle to fight these internals.

ETF Rewind - Week 48 (11/27/09)

(Click Image to Enlarge/ Glossary)

In spite of the late week Dubai World induced rout, equities put in a mixed performance depending where you looked, and losses were well contained on balance. For instance, even as the majors finished marginally lower (SPY -0.2%), the "Safety Trade" Large-Cap Style Stocks (PWV +0.5%), Utilities (XLU +1.3%), Consumer Staples (XLP +0.1%) and Healthcare (XLH +2.0%) Sectors edged higher.

In that regard, the shift of money flow over the last month away from the riskier Small-Cap (IWM) and Emerging Market (EEM) arenas has become increasingly pronounced. With volatility reintroduced and an increasing reliance on the large internationals to carry the major indices higher, it will be curious to see whether any dollar follow-through on last week's news places a cap on equities going into the Friday job numbers.

Week Forty-Nine of 2009 features another extremely busy economic calendar:

• 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.

I hope that you had a very Happy Thanksgiving weekend.

Never Investment Advice

11.27.09 - Bull Eats Bear

As you might have guessed last night, the dollar received a big boost on the Dubai news and commodities have been inversely crushed.  But most of the damage had already largely been done, and the bulls have come in to clean up the Holiday trimmings, erasing nearly half of the early losses.  Volume is up significantly over earlier in the week in this abbreviated session.

However, price and VIX action aside (highs just under 26 vs. 20 yesterday), internals are still very weak and they will need to begin to follow through soon even though this gap fill attempt doesn't look to be over.  Perhaps the declining five-day moving average will provide stronger resistance (about SPY $110.35).

Below you can see how the media is already deprecating the Dubai news in favor of the pre-slotted Black Friday drivel.

Happy Thanksgiving!

In additional to all else, I am very grateful to all my web supporters,

trading mentors and partners, fellow bloggers, and chat confidants.

All the Very Best to You & Yours

11.25.09 - Small Move on Strong Internals

We are seeing very strong Tick action and healthy Up Volume and Advance - Decline lines at the mid-day (although the AD line slope is easing up). The only small exception is the VIX, which, after threatening to break twenty, has ticked back higher. I'd also like to see our Market Sentiment indicator performing better. Sector wise, Energy seems to be carrying the day, as the Financials and other sectors struggle in spite of the dollar sell off.  Volume is naturally extremely low, so anything goes into the close.

11.24.09 - Slow Boat to Nowhere

The market is looking weak this morning, more so than price belies.  However, volatility is very low, in fact we are pushing VIX-20 again, but I'll be wanting to keep a close eye on any changes either way with volume as light as it is.  So far the five-day moving average is providing support for the SPY, and range-wise we have done nothing but ping-pong between the Pivot and S1.

11.23.09 - Heavy Quant Action

Friday's oversold state was bought heavily on the home sales catalyst, but on this light volume I see many of my long positions being held back at various key intra-day moving averages -- a sure sign of Quant Players and Robots dominating the trade.  Although the market has faded a touch, we are still in the mid-day, there was likely natural first-attempt resistance at the prior highs, and internals remain strong on an absolute basis.  Gold bugs are also having their day in the sun.  It will be curious to see what that may be signaling vis-a-vis the short-term Treasury auctions lining up just now.

ETF Rewind - Week 47 (11/20/09)

(Click Image to Enlarge/ Glossary)

Weekend festivities at a dear friend's birthday celebration have this post particularly short.  A mixed week for equities left the S&P 500 down -0.2% even as the Dow Jones Industrials managed to edge higher some +0.7%.  However, all the tracked non-equity indices managed to close in the green with Precious Metals (DBP) up another +3.4%!

Week Forty-Eight of 2009 features another important economic calendar in-spite of the major U.S. holiday:

• 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. 

I hope that you enjoyed your weekend, and a Very Happy Thanksgiving week in advance to you and yours!

Never Investment Advice

Edging in on DV Indicator Differentials

As a congratulatory hat tip to David Varadi on the launch of his new DV Indicators website, this post investigates potential trading edges gained by combining observations of the absolute value of David’s bounded DV indicator (see MarketSci spreadsheet) together with its smoothed difference relative to Welles Wilder’s classic Relative Strength Index (RSI).

Both indicators construct oscillators that compare current price to historic levels. However, while the RSI strictly employs differences in recent closes, the bounded DV looks at a great array of relationships between daily closes and their high/low ranges, prospectively capturing inherent volatility effects in addition to relative price placement.

An initial investigation suggests that differences in their respective behaviors and resulting lead-lag effects may be exploited to derive high-edge short-term swing systems and investment hedging strategies alike, as summarized below.

Performance Above & Below Various Differential Thresholds

CSS Analytic’s research indicates that the more positive the divergence between RSI(2) and DV(2) as measured using a proprietary smoothed RSI-DV calculation, the greater the next-day return expectation and vice-versa.

Additionally note below how these edges may change according to the absolute value of DV(2), with the far right-hand side of each table including all values of DV(2), then becoming progressively oversold towards each left-hand side. Maximum next-day loss expectations also increase as divergences become more negative. Various short-term trading strategies may be tested based on these observations.

SPY/ Dividend Adjusted/ Five Years Ended October 2009/
Differential ><

Performance Above Various Differential Thresholds

Here we see aggregate performance above various thresholds only. Focusing on Cumulative Profit and Loss multiplied by Equity Curve Linearity (see table d), note how Differential readings greater than -10 in combination with absolute DV(2) readings below 60 maximize returns for minimized risk.

This suggests a long-term strategy whereby investors may consider hedging their holdings when these criteria are not satisfied.

SPY/ Dividend Adjusted/ Five Years Ended October 2009/
Differential Greater Than Only

A Systematic Hedging Strategy

The following chart shows the results of our hypothetical hedging strategy using the SPY as a proxy, going to cash each time our Divergence/ DV(2) filters are not favorable. The strategy was only invested 49% of the time during the 1,250-day study period. Positive results were also found for many other major equity-based ETFs.


Again, congratulations to the whole CSS Analytics crew on the launch of their new website: It's a DV World Baby! We all look forward to seeing it evolve and grow.

---

Never Investment Advice. This article was first published for ETF Rewind subscribers several weeks ago. The ETFR scans nearly 200 ETFs each night for setups that fail the discussed thresholds. For additional reading on DV vs. RSI differentials, I also want to recognize this terrific predecessor/companion article by Woodshedder. As a disclosure, I assisted in programming many of the available indicators according to DV's specifications.

11.20.09 - Downside Follow Through

Well, it has been a while since we have seen any downside follow through and here we have it. Nevertheless, the SPX has been able to hold the overnight lows just above 1,080 and price has been moving mostly sideways since mid-morning. Cumulative Tick has managed to repair itself somewhat, but other internals remain quite negative. With options expiration, it's more difficult than usual to call the second half of the day, though it would seem likely well see some binary option pin action between these 1,080 and 1,090 levels.

11.19.09 - Comeuppance vs. SPX 1,090 Support

The S&P finally hit an air pocket after days of lateral move and mixed technical indications.  Normally I'd expect this reaction to take us back to 1,080, but for now we are finding good support at the round SPX 1,090 level, and we'll just have to see how enticing this is as a buy for the late-to-the-gamers.  Our Market Sentiment reading is very negative and was pegged at zero at one point.

Maybe you can guess where I find myself once more based on today's graphic... sigh.  Fortunately I have been playing the chop on the short-side with small tactical positions, and they have worked out well today though honestly this could have just as well been the belated move to 1,120 on the right news I suppose.

11.18.09 - Second Day of Consolidation?

Internals are running sideways with price on slightly negative sentiment.  It's possible consolidation here as short-term overbought readings cool off through time.  By the same token, we are seeing fewer new highs and the intermediate-MACD indicator again appears poised to roll over.  At the very least we can say we are at a momentum lull as traders look to gain a feel for the next break.

11.17.09 - Inverse Dollar Trade Persists

At the mid-day we have seen mild selling pressure at best after yesterday's breakout move, though perhaps today is the bigger tell. While 1,120 would appear just around the corner, I still see signs that the end of this cycle is near. I am hopeful that my internet connection will be up and running very soon. The cafe is cozy, but...

11.16.09 - Second Stage Launch

Horrid internet issues after a series of windstorms have me out-of-pocket once more and holed up in an internet cafe.  The morning economic reports provided enough bullish confirmation for another big push higher even though last week's action had left many short-term indicators rolled over.  Just can't fight this bull for long.  Will we get our projected fib-extension to SPX 1,120?

Without my main workstation on-line, I have found the Daily Sentiment indicator embedded into the Mrkt Metrics charts to be enormously helpful (sorry, Firefox only).  Speaking of which, do take a look at the Normalcy indicator; this market is tremendously stretched from its intermediate mean, which is particularly unusual on the upside.

ETF Rewind - Week 46 (11/13/09)

(Click Image to Enlarge/ Glossary)

After a bumpy ride, the S&P500 (SPY) finished its second week in a row higher, up +2.3%.  This seemed paltry against the Real Estate (IYR) sector's +6.2% gain on hints of extended low costs of borrowing, while the Energy (XLE) complex came in at a mere +0.3%.  At the end of the day; however, it was difficult to disaggregate daily equity performance from that of the US Dollar (UUP), which inversely ended the week down some -2.2%.

Week Forty-Seven of 2009 features a particularly busy economic calendar:

• 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

11.13.09 - Lucky 13

The reasserted crush in the Dollar has allowed the SPY to bounce nicely off it's five-day moving average, and the other indices are following suit. I'm flying slightly blind with a bad internet connection today, but I see that our Market Sentiment meter swung positive during the mid-morning.

10.12.09 - What Goes Up...

The round 1,100 level has proven strong resistance once again and we finally have seen some light selling pressure, which at these volume levels may be more of buyer's strike.  Semantics -- either way, the VIX has been steadily rising after an extended period of abnormal stretch below its near-term averages, Cumulative Tick is very negative, Down Volume is extending its advantage, and the Advance - Decline line is pushing -3,000.

This is not unexpected after eight days of vertical climb.  But really, how many times can the bulls juice the day on better than expected numbers when their absolute values remain horrid.  500,000 more jobs lost!  Chinese exports down +10%!

Just how much lipstick is left in the tube for that pig? Well, probably more than I can imagine, but either way this is a healthy move needed if the markets are to continue their bullish rise. Just now the SPY lows have held a retest, but again, for now internals suggest this downside range could continue to expand.

Thank You Vets

11.11.09 - Rocky Top

The market has been all over the place this morning in range with good tradable tells provided by Cumulative Tick and the Advance - Decline lines.  After the reversal from the new highs, however, the SPY came back to its daily pivot where it found sufficient support for a VWAP tag.

Internals are strong enough that I assume we hold above that pivot for the balance of the day, though we are obviously very extended here and I'd like to be seeing more new highs, which are suspiciously absent.  Lastly, Energy and the Dollar appear to be exerting a large influence on daily trade, so I'll continue to keep an eye on those two.

11.10.09 - Negative Sentiment

Most internals are aligned with our Daily Market Sentiment reading, which is to say, negative.  However, in spite of the weak internals, price is holding up relatively well with the SPY holding its daily pivot at the mid-day.  That said, Small-Caps are doing very poorly (IWM -1.19%), presumably on less dollar loss prop, and I can't think that augers well.

11.09.09 - Lowish Volume Trend Day

Friday's lateral trade resolved itself to the upside this morning, and strongly so.  No doubt the gap up and immediate support at SPY R1 scared out remaining shorts.  Internals remain nicely bullish, but I note that Tick readings are moderating in magnitude and that volume is fairly light overall.

ETF Rewind - Week 45 (11/06/09)

(Click Image to Enlarge/ Glossary)

Ten percent-plus unemployment be damned, the S&P500 (SPY) finished the week up +3.4% for its first positive performance in a number of weeks.  While the back-to-back plus days last week were most impressive, several indices are already beginning to look overstretched to the upside.  Certainly traders are pondering this weekend whether Friday's flattish trade was more bullish consolidation, or a 62%-Fibonacci, 20-day moving average resistance line setting us up for at least a brief reversal.

Week Forty-Six of 2009 features a slower reporting calendar:

• 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

11.06.09 - Quacks Like a Duck

The market held firm at the daily SPY pivot in-spite of the jobless rate report and initial dip. In fact, internals have been aligned to the upside since mid-morning, although they have just now found some potential breakout momentum.

Nevertheless, Up and Down Volume are about evenly matched, risk appetite looks light, and I assume we are in a range day here ahead of the weekend. We'll see soon enough how those prior highs at the 20-day moving average are handled on the second test, which will likely be the big afternoon tell, one way or the other.

Oh, "Quacks Like a Duck" -- Bull Market, right? Though I'm sure the blog-o-sphere will be full of Head-and-Shoulders talk this weekend; remember, it's only a pattern when it's confirmed and for now this is just one more cycle in the recovery.

11.05.09 - Positive Internals, Resistance at Prior Highs

Equities prices began to struggle as they neared the prior reaction bounce highs from October 29th.  Today's economic news was largely positive, but naturally there will still be trepidation going into tomorrow's big jobs report (aren't they all?), which may keep the lid on what remains a very positive day both from a price and internals perspective.  I meant to mention yesterday that the short-term MACD component began to move higher.  If we are able to break the morning highs in the afternoon session, I'll look to SPY $107.15 as next resistance.  Meanwhile, yesterday's highs/ today's VWAP are providing good support.

PS - Thank you to those who pointed out the Mrkt Metrics gadget isn't loading.  Let's hope the good folks at Google Finance get their act back together.  Maybe one day they will even make it compatible with IE!

November FOMC Statement Blue-Line Comparison

11.04.09 - Pre-FOMC Bid

Internals started out in trend-day-like fashion, only to hit the typical pre-FOMC announcement plateau and I note disconcerting relative weakness in the broader Russell 2000 (IWM). Nevertheless, this market remains oversold and could easily be ignited higher, but all we can say going into the second half of the day is that volatility will surely increase!  Be certain to come back later to read the blue-lined version of the statement.

October 2009 Rewind - A Stop in the Road

October finally put a halt in the road for equities' historic seven-month run off of the March lows, leaving the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices mixed at -1.98%, +0.00% and -3.02%, respectively.  The month also ended with the VIX back in the low thirties for the first time in a while.

With the majority of third quarter earnings entered into the record books, the pullback came on nascent dollar strength, a key rate increase in Australia, higher energy costs and mixed economic reports.  Small (IJK) and Mid-Caps (IWS), Financials (XLF) and Materials (XLB) led the retreat, while Energy (XLE) and Consumer Staples (XLP) were able to eek out positive returns.  Ten days into the decline, traders in early November will be looking to the FOMC and the monthly jobs report to put the rally back on track.

Sentiment: Mixed
Volatility: Wide Ranging (VIX 20-30)
Direction: Flat

[Click to Enlarge/ Weekly ETF Analyses]

---

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.

11.03.09 - Potential Higher Low?

The opening lows held on their first retest, prospectively marking a higher low.  However, to maintain that outlook, internals are going to have to turn it around here, as they remain marginally negative.  The Semis (SMH) are having a particularly difficult time.  Tick is putting in some higher [corrected] lows just now, let's see if the SPY price break above the VWAP can take hold.  With VIX slowly moving higher, that may be an optimistic thought.

11.02.09 - Quiet Consolidation?

What to make of today's trade?  Currently we are running sideways on good volume and have respected the Friday lows.  On an absolute basis internals are positive, albeit trend-less for the most part, maybe slightly negative just now.  It may be we keep range bound going into the FOMC statement later in the week.  For now I'll put daily support at the opening dip and resistance at the declining 5-DMA/ R1 (SPY $103.90-105.75).

ETF Rewind - Week 44 (10/30/09)

(Click Image to Enlarge/ Glossary)

A volatile week left equities down significantly on mixed economic messages.  In fact, the Russell 2000 (IWM) and Emerging Market (EEM) ETFs were down a whopping -6.2% and -7.8% respectively.  This type of reintroduction of volatility is generally not solved easily or quickly, and I suspect we may see more choppy performance in the weeks ahead.  A quick overview of my current thinking may be found here in Friday's mid-day post. 

Beyond that, perhaps the most stunning statistic in this week's table is the VIX's near 31% stretch from its fifteen-day moving average.  In my opinion, the usual bullish implications of this statistic should be moderated by the possibility that we are entering a regime change.

Week Forty-Five of 2009 features yet another very busy economic calendar culminating in the monthly Friday Jobs Report:

• 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 one-hour longer weekend, remember to change your clocks, and hope you had a Happy Halloween with the Kiddos!

Never Investment Advice