Saturday, May 29, 2010

ETF Rewind - Week 21 (5/28/10)

(Click Image to Enlarge/ ETF Rewind Glossary)

In a small triumph over another week of noisy trade, the S&P 500 (SPY) was able to recuperate a fractional gain of +0.2%. Not much consolation after the -7.9% draw-down on the month, but I'll suspect bulls will take what they can get. After the late day sell off Friday and with the market in short-term neutral territory, perhaps next week will add to the repairs on the right news flow. Holiday shortened Week Twenty-Two of 2010 features the following busy economic and reporting calendars, including a Friday Jobs Report:
I hope you have a terrific long weekend!

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.

Never Investment Advice: Prior Weekly Summaries: ETF Rotation Models

Friday, May 28, 2010

Friday Fun - Million Dollar Questions

05.28.10 - Minor Retrace

Not unexpected. Note, however, how the midpoint zone of yesterday's trade has provided good support. I think we'll probably finish up somewhere in that range in this light volume pre-holiday trade.

Update: Fitch/ Spain downgrade within minute of this post... seems like an overreaction for a "stable" AA+, but hey....

Thursday, May 27, 2010

05.27.10 - Explosive Open

...followed by sideways trade with a good deal of potential range used up in that first hour. Internals remain strong by all metrics. SPY price has been stalled at its 38% retrace (roughly), although the QQQQ and IWM have been able to maintain up-slopes and all three VWAPs remain positive. I think this can move higher, but have taken a little off the table to reinvest on noise and am trailing ATR stops all around. At present, I consider all longs as trades only.

Wednesday, May 26, 2010

05.26.10 - Positive Internals

Price is struggling under its declining VWAP, where it has been likewise bound to the upside by its falling 5-day moving average. However, internals are strongly positive so there is still good hope for a higher close.

[Excellent: European Economies in Graphics]

Tuesday, May 25, 2010

05.25.10 - Equities Take it on the Chin

US Equities were punished overnight on European sovereign funding costs, taking the SPY just below $105, at or about its February lows. We are seeing a mild recovery holding VWAP, but it's fairly non-enthusiastic action and reminiscent of yesterday's noon-day trade....

Libor Spike

McClellan in Crisis Range

via StockCharts.com

Monday, May 24, 2010

05.24.10 - Stabilizing?

Markets are trying to grind higher as the VIX sees a mini-crush and indices challenge Friday's highs. Internals are mixed, but mostly sloped higher even as up and down volume are matched, suggestive of a positively biased range trade overall. Don't forget that a good part of Europe is on vacation today.

Sunday, May 23, 2010

ETF Rewind - Week 20 (5/21/10)

(Click Image to Enlarge/ ETF Rewind Glossary)

Last weekend there were early warnings of a potential 200-day break on the S&P 500 (SPY) and that's exactly what we got with the index down -4.2%, about half a percent below its 10-month moving average.

While a recapture of that level is probably in the cards, everything is a trade for now and without a significant catalyst, many will be looking for short entries or to cash out on strength. Meanwhile, if you were having flashbacks to 2008, you weren't the only one. In fact, 2008 popped up in our top five high statistical analogues chart of the week. The forward projections on those matches aren't pretty.

Week Twenty-One of 2010 features the following busy economic and reporting calendars:
I hope you have a terrific weekend!

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.

Never Investment Advice: Prior Weekly Summaries: ETF Rotation Models

Friday, May 21, 2010

Friday Fun - Highway to the Danger Zone

05.21.10 - S1 to R1 Recovery Bounce

The correction looked overdone just north of yesterday's SPX 1,050 reference point and with some news flow catalysts, a moderate recovery bounce is underway that I expect should eventually take us at least to a retest of the 200-dmas from below with SPY $112.50 as a second target. While price is currently pausing just under R1, internals remain constructive for a close above VWAP with potential support on a retrace between SPY $108 and $108.50 or so.

Never Investment Advice

TED Spread

Thursday, May 20, 2010

05.20.10 - Can't Contain the Spill

Today's market behavior and the Gulf spill do have their similarities, don't they? Correlation is running high along with volatility and containment is clearly a concern. Bill Luby posted a nice piece on prior crisis VIX levels before 2008 (about here at VIX 45). In contrast, the 2008 nose dive when those levels were breached represented containment fear, that markets were facing systematic failure. It seems to me that same question is being asked today.

I did put some money to work today on selective longs near SPY $108. It held fast the first go, but it feels early here as that level looks get retested and I am hardly in a rush to get over invested on a reversion play. Daily Sentiment is pegged to zero, so I assume we break those a.m. lows and start looking to next "support" (from yesterday's post, $105 handle).

Wednesday, May 19, 2010

05.19.10 - "Official" Correction at 200-DMA

We are getting a reflexive bounce back up to the VWAP after tagging the 200-sma/ema and recording an 'official' 10% correction off the SPY's April highs. We'll see how we do at the VWAP here -- on the bull ledger, the VIX is peeling back from its near 40 tick. Metals are certainly getting hammered. Should we reverse and close under the 200, however, I would be very pessimistic and extreme caution is warranted here. Next SPY support at high $108 level, then we are looking at $105....

Tuesday, May 18, 2010

Shakedown Breakdown Takedown



Next Fib level is at SPY $111.15, followed by the 200-dma/ema at $110.35. It seemed like a slow drip after the VWAP recapture fail, but the move has certainly picked up speed since the Pivot broke. Going into the final hour, it would seem yesterday's lows should hardly provide pause, we'll see momentarily as we are retesting that level right now. Update: And hold... but fading after the bell in spite of earnings beats...

05.18.10 - Gap Up Faded

The S&P 500's gap higher was faded precisely at its R1 and is now finding support near its floor trader pivot, which coincides with several days of closing values. I think a retest of the falling VWAP is plausible as internals slowly become more constructive.

SPY versus FXE Euro Currency

Monday, May 17, 2010

05.17.10 - VIX Tags 35

Equities continue to be drawn to their 200-day moving averages (near SPY $110) as today's opening recovery failed to hold. Note, however, how the slide was stalled by potential capitulation in relative adjusted volume, indicated by the dashed green and red line tracing along with the gray VIX.

Sunday, May 16, 2010

ETF Rewind - Week 19 (5/14/10)


(Click Image to Enlarge/ ETF Rewind Glossary)

Traders may have finished the week feeling forlorn after Friday's repeat bear performance in spite of an otherwise admirable recovery off of the prior week's significant pullback. In fact, the S&P 500 (SPY) and Russell 2000 (IWM) finished higher a full +2.4% and +6.4%, respectively.

Meanwhile, commodities are beginning to look as oversold as the US Dollar is overbought. Unfortunately for the bulls, we cannot also say equities are as oversold, with volatility looking well entrenched for the time being.

Indeed, emerging fundamental worries critically aside, a real cause for technical concern is the major deterioration of five of our tracked equity indices, which are now well below their respective 10-month/200-day moving averages (namely the Internationals - EFA/EEM, Materials - XLB, Energy -XLE, and Healthcare - XLV). The last time this occurred ended up being a false alarm -- will this one as well? I have to grant that this go does feel qualitatively different.

Week Twenty of 2010 features the following economic and reporting calendars:
I hope you had a terrific weekend!

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.

Never Investment Advice: Prior Weekly Summaries: ETF Rotation Models

Friday, May 14, 2010

Friday Fun - Bears Fight Song

05.14.10 - Downdraft

How long has it been since we've had identifiable downtrend days like this? Well, it's refreshing to have the market be reactive again. On today's chart, note how the VIX has exploded over 20% higher, but is now coming back in leading me to believe we've seen near-term lows at the old 50% fib level in the low SPY $113 area even though internals remain awful. Longs may also bet that directional traders will want to square up after nice short gains going into "magic" Monday.

Thursday, May 13, 2010

05.13.10 - Sector Dispersion

A dispersion of sectors and matched up and down volume are supporting range day with a toppish looking lower highs pattern. However, most of the indices have been able to hold their daily pivots thus far.

Wednesday, May 12, 2010

05.12.10 - Positive Inside Day

Inside, but looking to break higher as the market recovery continues. Things were looking dicey last night, but the weakness was bought and the panic volume has been declining along with volatility with the VIX seeing added crush. I think we have a better chance of breaking that SPY $117.40 level this go even if not today, then later this week.

Tuesday, May 11, 2010

05.11.10 - Stealth Trend Day

It took several hours before Up Volume could overtake Down Volume on the significant gap lower, but price has nevertheless moved relentlessly higher since the open on steadily improving breadth and tick readings. At the midday, we see the SPY pausing near R1 on an apparent march back up to its 50-day moving average of $117.45, which also happens to align with the 23% retrace off the highs and bottom of the choppy beginning of month range. Could be an important area to watch. Meanwhile, we see gold at new highs.

[April in Review]

April 2010 Rewind - Rocky Top

Although April finished the month near bull-run highs, equity prices began to show signs of increased volatility towards the top as the specter of sovereign debt downgrades came back to the fore along with a whole host of additional worries [also see February].

The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices nevertheless finished higher across the board by +1.48%, +1.40% and +2.16%, respectively. At this point we all know how this story unfolded. After the cascade failure on the sixth and subsequent "nuclear" weekend Euro bailout, equities are again marching higher. However, with volatility back in the markets for now, traders will naturally be looking at those prior highs with a leary eye.

Sentiment: Positive
Volatility: Low (VIX 15-22)
Direction: Highly Positive



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.

Monday, May 10, 2010

05.10.10 - Big Bang

The markets registered an extraordinary gap higher on the euro zone support news, but have only gone sideways since with several of the leading indices now showing signs of fading under the falling five day moving average. Speaking of which, my tick data appears to be failing, so I cannot report on that today. Fib support should be in the low SPY $115 area -- we'll see as traders take pause after the short covering euphoria to reconsider why US involvement was really necessary to its full extend this weekend.

Volatility is Back - Which ETF Pairs Are Working?

With volatility ramping higher, relative value and pairs trading methodologies offer the potential prospect of higher returns with lower risk than buy and hold. When it comes to the ETF world, there are three ways to play this.

The first is to find near substitutes to arbitrage occasional statistical mispricings. The second is to find pairs that offer varying beta levels, then fade the differentials. The first is obviously the safer, albeit rarer of the two, yet both can be profitable as long as traders are aware of the risks they may be taking with the later method, and which nevertheless requires consistent volatility to "work" out of sample. The third method is to trade ETFs against baskets of individual stocks, which goes beyond the scope of this post.

The table below investigates potential profitability of the second beta offset method using cross pairings of 32 major indices, capitalization and styles, and major sectors. The upper-right hand cells provides hypothetical end-of-day profit and loss results for the various pairings after trading costs using optimized parameters over a six-month period, while the lower-left hand area shows the linearity of those return series.


The circled ETFs offered the most consistently high return pairings, including EEM, PFF, XLF and IYR. Since this run only covered the most recent six month period, I also went back to May of 2009 to capture the volatility peak, where the same cast of characters arose with the addition of IDV. More interesting results may be achieved looking at Countries and Subsectors. This entire analysis was conducted using the standard tools provided in the nightly ETF Rewind worksheet.

[Related: More on Pairs Trading]

Sunday, May 9, 2010

ETF Rewind - Week 18 (5/7/10)

(Click Image to Enlarge/ ETF Rewind Glossary)

Last week we doubted that this news cycle had run its course, a week later markets looks extremely oversold after having faced their worst weekly performances since October 2008. In fact, the S&P 500 (SPY) finished down -6.4%, while the EAFE International Index (EFA) suffered a whopping -9.6% correction.

The real news this weekend is the United States' pledged currency support for the euro-zone. Well, it doesn't serve our heavily foreign exposed large-caps for the euro to collapse either. It's a binary world right now. How will markets see this -- as supportive, or as a sign of just how bad things really are? We certainly could be poised for a significant bounce, although this just hardly "feels" over just yet. One this is certain, I cannot recall ever seen the VIX as stretched as it is right now at 88% over its 15-day moving average.

Week Nineteen of 2010 features the following economic and reporting calendars with a special focus on retail sales:
More thoughts on this environment. I hope you had a terrific weekend!

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.

Never Investment Advice: Prior Weekly Summaries: ETF Rotation Models

Huge News Flash -- US to Back EuroZone

It's a binary world right now. How will markets see this, as supportive, or as a sign of how bad things really are or were feared to become...?
WASHINGTON (AP) -- The Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent.

Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank, are also involved in the effort.

The move comes after the European Union and International Monetary Fund pledged a nearly $1 trillion defense package for the embattled euro, hoping to calm jittery markets and halt attacks on the eurozone's weakest members. The ECB also jumped into the bond market Sunday night, saying it is ready to buy eurozone bonds to shore up liquidity in "dysfunctional" markets.... [Full Article]

Friday, May 7, 2010

Friday Fun - Peace Frog/ Blood in the Streets

05.07.10 - Sideway Trade/ Big Bars

The VIX is plus 7.5% as of the time of this writing. Markets are down roughly another one-percent, but trade is really running sideways for now and price was caught from its a.m. sell precisely at the S&P's 200-dma. This happens to coincide with weekly bar technical support, as shown below:

If your charting package does not display volatility adjusted range bars, you may consider reducing your time frame by 1/3 or more to better see the structure of these wide ranging bars.

Thursday, May 6, 2010

1,000 Point Day Subscriber Newsletter


Dear Subscriber,

So this is what the second largest NYSE volume day looks like? One trillion dollars in market cap was reportedly lost at the peak of today's down-trade. We will all have war stories to tell about this day for a long time to come. There have certainly been signs during the last two weeks, which we have discussed, and this morning as well, but that afternoon session was something to behold. And yet, anyone who tells you that they expected a 1,000 point down day is either blowing smoke or is a "see I told you so" perma-bear. Well, now everyone has had a chance to be "right" during these last two months.

Going into the day, there was good reason to expect that the 38.2%, or at least the 50% retracement levels might hold for at least a bounce. Erroneous trade rumors aside (awfully convenient), that is indeed where we closed, just below SPY $113. With price action broken and the 200-day moving average for the SPX conceivably in play, a greater than usual level of importance will be attached to news in the days ahead, including:

  1. The Jobs Report (+187K/ 9.7% unemployment rate expected)
  2. UK & German Political Elections
  3. The Vote on the Greece Bailout
There is also the question of what this move does to investor sentiment, and it's impact on tomorrow's open. Not unexpectedly, the overseas trade continues to take it on the chin early this evening, but I also see currencies beginning to stabilize as Japan pumps liquidity into its system to keep pace with demand. For tomorrow, we hold a bullish signal stance, although, interestingly, the bias has moderated somewhat. Most importantly, we ran so far as to go into a "non-normal market" state today and the modality of our ETF Ranks are once again showing a suspect split nature. In support of the bull signal; however, we also see a bullish VIX:VXV reading.

Back to war stories, as our chat members know, I got lucky today in spite of fighting the tape in the morning, and I especially feel for anyone who had intelligent stops way out of the money hit, only to have the market come back by half. I do hope those trades eventually get canceled or that you had acquired short-side protection when it was inexpensive.
This reminds me, every single long in our relative strength model portfolio potentially got stopped out today for a 1.86% loss (unofficial until the weekend). It likewise seems logical that trailing stops contributed to today's late day acceleration.

If you are in a similar position, recall that mean reversion and relative value mispricing/ pairs methods generally far outperform as volatility accelerates -- and I have to think that the recent clusters portend further volatility as it works its way in time through the system. However, these methods are subject to overshoot, sometimes significantly so. This can lead to wild equity swings and sleepless nights. Therefore, if you feel compelled to continue to trade through the volatility, two ideas are to: 1) cut back in size/ hold greater than normal cash until we return to normality/ the trend has stabilized; or, 2) scale-into any trades. Just some points to think about.

Take a close look at that Fibonacci [attached] and other special charts below, take a deep breath, and hang in there!


Reading:

Very truly yours,
Jeff
Pietsch

------------------------------
---------------
Guest Contributor: "Mr. Ice"
---------------------------------------------


Another bear with shotgun day. I am trying hard to figure out what to write tonight. Deep in my mind I always thought we will get another double dip sometimes this year. China, the manufacturing hub of the world, had being showing the slow down for at least a month and its leading us down just as they led us up. Retail seems to be hitting a peak. I am seeing good earnings sold from SHOO, JNY, DSW, KSS, SHLD, etc.... So a second half economic slow down is being priced in along with European risks and interest rate risks. Perhaps a weak jobs# tomorrow morning with cement the downtrend.

The action today really messes up the charts, but any way you look at them, we are now in a downtrend. McClellan Summation is firmly in a down trend. Volume was huge, breadth was horrible, and there isn't any good technical support. We may see some counter-trend bounces, but this is a market that has a high risk of further downside in the near term. At minimum some kind of test of the low can be expected.

I find explanations of a bad trade entered hard to believe. No one enters trades with words, they are always numeric, so the "b" for "m" is ridiculous. In addition, most systems have checks on trades that deviate by that order of magnitude, so numeric entry error is highly unlikely. More likely is a software errors or algorithm piling on.

McClellan Osc is back to Nov 2009 levels and VIX spiked to 40. We are so over due a bounce, but the traders who caught the 70 point sp500 rebound would be looking to unload and late to the game home gamers would likely want to get out. A gap down will probably be fade-able again tomorrow morning, but do not think we close in the green before the weekend. This is extremely difficult to write after we have fallen so much but I say give it another couple of days on the down side. Volatility is returning so be nimble, there will be trades both ways.

Item of Interest:

NASDAQ is busting trades that is way crazy on PG today. CNBC breaking news --

NASDAQ OMX Group issued the following statement after the market close Thursday: "NASDAQ reported that we had no technology or system issues associated with the trading that occurred between 2:00 and 3:00 p.m. ET today. Our market close process ran successfully. We have coordinated a process among US Exchanges and therefore, pursuant to rule 11890(b), NASDAQ, on its own motion, will cancel all trades executed between 14:40:00 and 15:00:00 greater than or less than 60% away from the consolidated last print in that security at 14:40:00 or immediately prior."

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Never Individual Investment Advice


For personal use only; not for retransmission. Blog and associated products are for educational purposes only, and nothing herein should be construed as an offer to buy or sell, or as a solicitation of an offer to buy or sell securities, or to provide individual investment advice. Investing is risky and past performance, whether actual or tested, is no guarantee of future results. The author neither endorses nor warrants the content of this site, any embedded advertisement, or any linked resource. The author or his managed funds may hold either long or short positions in the referenced securities. The views of Guest Contributors are strictly their own. No warranty or representation, express or implied, is made as to the accuracy or efficacy of the information contained herein.

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European Train Wreck

First Update: Well, I had originally entitled this post "1987 - Back to the Future," just ask the chat-room gang. But I changed that because I didn't want to be fear mongering... little did I know! Wow! More later...

Second Update: Computer error or not, I hardly think this noise is over.

05.06.10 - Failure to Bounce at 38% Retrace

The S&P 500 hit $115 and a quarter right above the January highs, but we've failed to get convincing support so far even though all eyes are glued there. Next support is all the way down at $113-plus (50% retrace) and internals are quite awful yet again. I want to put more capital to work, but feel forced to keep it small for now even as I peel off hedges. There is still the chance that we see some shorts squaring up into the jobs report, but there are so many cross-currents right now, it's fast break mode for the rest of the week.

UPDATE: Twitter is choked. Note -- there is my $SPY $113 handle -- didn't think we'd actually hit it today! #MKT

Wednesday, May 5, 2010

05.05.10 - Minor Dip Recovery

Global cross currents continue to pull forward. However, the S&P 500 found early support at the SPY $116 level. Price has held above its rising VWAP since then, though it's hardly aligned with the heavy internals action [edit add: and the EOD forecast is ugly to Daniel-D's point]. The daily-bar odds call for added upside, but I'm keeping exposure light given this discrepancy and will happily play some sideways trade.

Never Investment Advice

Cinco de Mayo - Worry Dolls Needed?

From Wikipedia,
"Worry dolls (Spanish: Muñecas quitapenas, "Dolls [that] remove worries")[1], or trouble dolls, are very small and colorful dolls traditionally made in Guatemala.[2] A person (usually a child) who cannot sleep due to worrying can express their worries to a doll and place it under their pillow before going to sleep.... According to folklore, the doll is thought to worry in the person's place, thereby permitting the person to sleep peacefully. The person will wake up without their worries, which have been taken away by the dolls during the night."
Here is a summary top-of-mind list of issues the markets will continue to face in the days ahead from our nightly newsletter:
  1. US Terrorism Plots
  2. Euro-Zone Sovereign Debt Contagion
  3. Jobs Growth Uncertainties
  4. Major Gulf Oil Spill Economic & Environmental Impacts
  5. Proposed Financial Sector Reforms
  6. Goldman Sachs Civil & Criminal Fraud Charges
  7. Selectively High Valuation Multiples
  8. Withdrawal of Chinese Stimulus
  9. Apple Anti-Trust Inquiry
  10. Icelandic Volcanic Ash
  11. Australian Commodities Tax
Has the market lost its ability to sleep on it and move relentlessly higher? That's quite a list, we'll see soon enough.

Tuesday, May 4, 2010

05.04.10 - Bear Trade

The overseas trade moved US indices at the get go, keeping the strong bearish trend trade in tact down to the S&P 500's fifty day moving average. The VIX at one point was plus 25%. Back in the bad/good old days, I'd say afternoon continuation.

Price has certainly had a difficult time making it back to VWAP, but this has been a very big move for the recent environment and I'm thinking that 50-dma will hold for the day. One thing is for certain, the VIX is on a buy on the daily time frame. Fades have to be quick in this increasingly choppy market. [Key Levels]

Never Investment Advice

Take That!

Mrkt Fibonacci Report

Monday, May 3, 2010

Seeking a Better Moving Average?

Any trader with a charting package and more than two weeks of experience is well versed in the shortcomings of simple moving averages attendant to their significant noise and lag. While they certainly have their place in the trader's arsenal, the first indicators to trade up to for more reliable trend identification are exponential and weighted moving averages. These may significantly reduce the lag factor. However, their perennial memory can be a problem in its own right, as addressed in this previous Market Rewind post (includes Visual Basic code for you "uber geeks").

Superior Mouse Trap?

But can we do better than these solutions? Certainly! If you haven't discovered it yet, the Hull Moving Average (HMA) provides a significantly better fit to price with minimal delay by taking price changes out of time space using a weighted squares methodology.

Its primary weakness can be overshoot, although there may be clever ways to reduce this that I may explore at a high level in later joint posts along with David Varadi of CSS Analytics. Speaking of which, here is a neat little "easter egg" for subscribers to his DV indicators Service. An undocumented feature of the included Microsoft Excel plug-in is the HMA! The user defined function is accessed like so:

=HMA(Last Price, Look Back Period)

In the S&P 500/SPY charts below, I have used that feature to demonstrate how an HMA of the same periodicity [10] as an REMA (my modified exponential moving average, also included in the package), can be used as a strong visual clue for identification of sustained trends:

As shown, the faster yet smooth nature of the HMA can be used as a visual trend indication relative to the slower REMA, with crosses above signaling a bullish trend, and crosses below a bearish one. Here I used the daily pivot/ typical price for all calculations. Note, however, this is just a visual clue for sweet spots in the middle, with the described cross-over approach typically working better on less than daily time frames.

Stealing the Cheese

Indeed, when the market is in its usual cycling phase, daily bar HMA slope reversals generally make a better first bar fade, as shown in the frictionless equity curve presented in the second chart above. As fodder for further research, also note how I have overlayed a chart of Historical Volatility of the fade system's hypothetical equity curve in red. Another mean reversion versus trend indicator for particularly extreme environments?


All data and indicators for these charts were generated with the
DV plug-in*. It's a remarkable tool that literally becomes a part of your MS Excel program, including over two dozen of CSS Analytic's proprietary technical indicators and systems. I hope David doesn't mind that I snuck a couple indicators in without a "DV" in front! As a second aside, the CSSA team has put together a very good handbook for their indicators, found here.

Disclosure - I Assisted with Programming the Plug-In/ Never Investment Advice

05.03.10 - New Month Pop & Second Entries

The market is coming back strongly today, preserving its recent range. Internals are very strong. In fact, that observation may have provided astute traders with a second entry point earlier this morning, as shown above. As support was proven at the opening price, internals remained upbeat while the VIX continued to fall.