Feeling Like Summer 2009?

H1N2010

H1 2010 -- Is it a virus, or the first half stock market performance on the year? Here is a small slice from ETF Rewind showing percentage changes for major indices, caps, styles and sectors during the last three, six and twelve month periods.

It's no surprise that the internationals were the hardest hit, but that's a lot of red no matter how you spin it. Preferred Stocks and the Real Estate Sector were the relative winners. I'm always left scratching my head on the latter, although I understand many REITs used the most recent run higher to substantially recapitalize. [Click Image to Magnify]

06.30.10 - Sluggish EOQ Trade

Internals and inter-market sentiment are positive at the mid-day, but not trending and price action is very sluggish with the SPY just holding onto its up-trending VWAP.

Relative Volatility & Comparative Mean Reversion Strategy Performance

It is simple intuition that mean reversion systems should outperform during periods of greater volatility when higher noise levels permit stronger relative returns. In an attempt to quantify the level of comparative returns, this study segregates average daily returns for a simple, well known Relative Strength Index (RSI) strategy as our mean reversion proxy according to varying levels of ranked Historic Volatility (HV).

By ranking HV, we are provided with a responsive rolling window of relative volatility that self-considers historical context and is thus far superior to fixed level analysis, as follows using the S&P 500 SPY Exchange Traded Fund as our trading vehicle:

As shown, the long-short strategy outperformed slightly in all environments on a frictionless, simple/ non-compounded basis. However, as volatility rose to upper traunches over the 2,385-day study period, the comparative level of daily edge increased significantly. Indeed, as expected, daily buy-and-hold returns actually went net negative past the median point.

However, as traders it's a goal to maximize returns per trade and strategy returns would have undoubtedly been significantly diluted by trading costs as volatility fell. Therefore, one can imagine a creative strategy that emphasizes mean reversion systems as volatility rises and vice-versa favoring long-side holds as volatility falls towards its lower quartile.

By the same token, it's important for new traders to recognize that mean reversion strategy returns can themselves be on the margin and volatile on days like today when the market is down a couple hundred points. Can you guess what buy/sell signal the proxy system is on today?

[Relative Ranked Volatility has been added to the nightly ETF Rewind dashboard.]

Never Investment Advice

06.29.10 - "Shanghai Surprise"

Yesterday's stand-off was settled today with a sizable opening gap and run to the downside, breaking potential trend line support near SPY $105. Whereas yesterday's volume was the lightest of the month, we are now near highs -- true distribution. Price action is catching its breath at the mid-day, but internals are very very negative and I don't feel compelled to add to my small long positions just yet.

It's difficult to draw next support from a technical standpoint as so much time has passed since prior key levels and the fear trade is definitively on. However, I'll draw a fat mark somewhere between SPY $100-103 as a next target with a bias to $101 [edit: whoops, meant $102].

06.28.10 - Bull - Bear Standoff

Today's graphic is worth a thousand words. Profit taking on the first thrust attempt to log a higher high were immediately pushed back to the daily VWAP.

ETF Rewind - Week 25 (6/25/10)

(Click Image to Enlarge/ ETF Rewind Glossary)

Our technical rotation models' call to remain in currencies and bonds ended up being the correct one as equities moved relentlessly lower for a -3.5% week-over-week decline in the S&P 500 (SPY). Even worse off were Consumer Discretionaries (XLY -5.1%) and Energy (XLE -5.6%) on the slower than anticipated final GDP readings. However, breadth and short-term relative strength indicators hooked a bit higher Friday, we'll see if that can't mount into a small recovery going into the end-of-month/ quarter.

The mid-point of the year, Week Twenty-Six of 2010 brings the following busy reporting calendars:

• U.S. Economic Calendar
• U.S. Earnings Calendar
• ETF Rotation Models [Custom]
  

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 over 200 ETFs across twelve major asset classes, you will find three model portfolios, daily market signals and commentary, pairs trading, rotation modeling, and various powerful portfolio management tools.

Never Investment Advice: Prior Weekly Summaries: ETF Rotation Models

Friday Fun - Summer Jam

06.25.10 - Internals Firming

While I'll grant that price action looks just like yesterday, internals are much more supportive for the bulls and thus far price has held firmly at S1. Volume is about on par with yesterday and small-caps are leading a small recovery on this Russell re-balancing day. We are certainly 'overdue' an up move -- can we get one going into the turn of quarter?

06.24.10 - Oversold but Internals Looking Bad

Look at cumulative tick, down volume and the AD line... not good and the news cycle is just not cooperating with oversold readings on the daily bar basis. Next SPY support looking a couple days out is another dollar or two lower near $105-106. The VIX is running just under 30.

June FOMC Statement Comparison

Blue-lined markup comparison of the June versus April Federal Open Market Committee statements below. Also see past Fed-Day reactions on this site, and prior statement markups here. Net net, looks like a minor economic downgrade on first review, particularly with respect to the pace of recovery...

[Click Graphic Below to Enlarge]

Did today's trade pattern surprise you? If it did, may I recommend Rob Hanna of Quantifiable Edges new e-book, "The Quantifiable Edges Guide to Fed Days". It's a tremendous compendium of over thirty years of Fed-day patterns and odds, and is well worth the small investment.

06.23.10 - S1/50% Retrace as Fed Day Support

Many overlapping key support levels colliding right about here as we face mid-day volatility evaporation ahead of the FOMC rate decision.  Don't forget to come here first for a blue-line markup of the statement.

06.22.10 - Stalled at the 200-Day Moving Average

The S&P500 is trading in a moderately narrow range above its VWAP and 200-day moving average, but just under its flattened five-day moving average. Although down volume still predominates, most other internals are showing a bullish leaning. Don't forget tomorrow is an FOMC day.

06.21.10 - Gap Fill Underway

Small Caps and the NASDAQ 100 have come back to their respective daily pivots. As short-term overbought as the market was, this opening gap was just too tempting to take profits on and or short. Many internals save Cumulative Tick remain net positive on an absolute basis, but at the mid-day they are obviously down sloping. I'll be looking for reversal/ end of trend anywhere between here ($112.10) and SPY $111.75 ("space" between Pivot and R1). If we do keep running lower, the rising five-day moving average about a quarter under that should provide even stronger initial technical support.

Never Investment Advice

ETF Rewind - Week 24 (6/18/10)

(Click Image to Enlarge/ ETF Rewind Glossary)

Markets continued their march higher on falling volatility with a growing slate of tracking indices recapturing their ten-month moving averages. In fact, the week's action left the S&P 500 (SPY) higher by +2.4%.

While this has been a very nice recovery, the number of short-term overbought readings has also increased and those falling fifty-day moving averages may be tempting for short-sellers to re-initiate positions just overhead. Lastly, looking at the ranks underlying our rotation models, I see that the current US Dollar (UUP) safety position just merely missed being eclipsed by small-caps (IWM). That would be a bullish development indeed -- but we aren't quite there yet.

Nearing the mid-point of the year, Week Twenty-Five of 2010 brings housing, durable goods and a Wednesday Federal Open Market Committee Rate Statement, as follows:

• U.S. Economic Calendar
• U.S. Earnings Calendar
• ETF Rotation Models [Custom]
  

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 over 200 ETFs across twelve major asset classes, you will find three model portfolios, daily market signals and commentary, pairs trading, rotation modeling, and various powerful portfolio management tools.

Never Investment Advice: Prior Weekly Summaries: ETF Rotation Models

Friday Fun - Keep on Rockin'

06.18.10 - Tick Struggling

In the second pane of today's graphic, you can see how cumulative tick is struggling at the mid-day. We are overbought here and it is quadruple witching -- we'll see. Looking at today's chart, also bear in mind the SPY went ex-dividend.

06.17.10 - Swing High Posted?

Internals and Price Action are aligned to the downside making SPY $110.00-110.50 a prospective first target. However, bears need to watch volatility very closely, as it is also falling -- keeping it "light and tight" for that reason here and perhaps a higher low here can lend some support. Upside risk remains near the falling fifty-day moving average in the low $114's. Meanwhile, note how Discretionaries, Energy and Financials are leading the way down -- I'll be keeping a close eye on those as well.

Never Investment Advice

06.16.10 - Price Defies Internals

... however, the slope of those internals is as important as their relative levels. Meanwhile, the S&P's daily pivot took on clear significance during this morning's trade as we saw successive bouts of quick covering off that line on various upgrades, production numbers and the BP news. I don't have a strong feeling for the p.m. session given the internals disconnect, but am thinking wide range day for now while granting that the recent uptrend channel remains intact while pushing overbought on a daily bar basis.

Never Investment Advice

06.15.10 - 200-Day Moving Average Assault

We have seen bullish price action and internals through the mid-day, making for a strong recovery effort versus yesterday's afternoon giveback. Additionally, I am seeing more aligned/broader cross-sector participation. Obviously, all eyes are on those 200-day moving averages just above yesterday's highs for the S&P500. A close above SPY $111.1 or so could provide comfort to bulls, although we are a touch short-term overbought here on a daily bar basis. I forgot to mention I would be on the road yesterday, it's good to be back.

Never Investment Advice

ETF Rewind - Week 23 (6/11/10)

(Click Image to Enlarge/ ETF Rewind Glossary)

The market was able to repair itself somewhat last week with the S&P 500 (SPY) higher by +2.7%. While price action may face significant resistance just overhead and we are mildly short-term overbought, it was very encouraging this week to see select leading ETFs recapture their ten-month moving averages, including the Russell 2000 (IWM), Industrials (XLI), Transports (IYT), Consumer Discretionaries (XLY) and Real Estate (IYR). While it's true that the most oversold indices often bounce the hardest, that is a seemingly bullish slate indeed.

Week Twenty-Four of 2010 brings key housing, industrial production and inflation numbers, as follows:

• U.S. Economic Calendar
• U.S. Earnings Calendar
• ETF Rotation Models [Custom]
  

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

Are There Any Positive ETF Ranks Left?

Many of you will recall my ETF ranking methodology described here, as provided nightly within ETF Rewind for well over 200 asset class tracking ETFs. As in the Spring of 2009, the distribution of this indicator across all assets classes was a terrific confirming tell of the market's pending directional change.

After the recent correction, the bullishly ranked ETF screen (7 or higher) is down to a very short list of 22. While most of them are to be expected as counter equity plays, there is definitely a surprise or two in the list -- can you spot them?

As a proxy for what I'll call diversified technical breadth, this reading almost seems too far done, as I don't think I've ever seen it quite this bad in terms of absolute aggregate readings or modality, even during the 2008 crash. Well is it really?

May 2010 Rewind - Sovereign Debt Cascade

After a rocky April, May was a veritable cascade reminiscent of Fall 2008, featuring an all-in retrace now well past a 10% "official" correction here at the mid-month on sovereign debt contagion and building double-dip worries.

The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices all finished lower for the month by -8.20%, -7.92%, -7.41% respectively for negative annual readings across the board. With many major indices now just under their respective 200-day moving averages and volatility still fairly high and erratic, it feels as if the markets could run hard either direction at any moment.

Sentiment: Negative
Volatility: Moderate to High (VIX 20-46)
Direction: Highly Negative

[Click to Enlarge/ Weekly ETF Analyses/ Prior Monthly Summaries/ Mrkt Rotation Selections]

---

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.

Friday Fun - Aloha Friday

06.11.10 - Opening Reversal & Range Trade

SPY $109-111 as increasing technical resistance zone.  In fact it's so meaningful that if we do in fact break, I half wonder about a 'bout of covering action.  We have been establishing higher daily highs and lows in spite of the volatility, it's something to consider/ be equally prepared for.

Breakfast for Bears

Ever notice that when volatility is high, news to swing the market hard in either direction tends to provide for itself? "Retail sales are reported to have fallen the most in 8 months." This after the third strongest up day or so for the year.

IE 8 Working - Please Let Me Know?

Hours of tinkering with the apparently notorious Internet Explorer "sidebar float" problem appears to have yielded a solution, even if not 100% perfect. Still not sure why that crept up for no apparent reason after years of publishing, but such is life on the bleeding edge! Please let me know if it's working for you!

06.10.10 - Groundhog Day

Large opening move on terrific internals followed by slow deterioration featuring lower highs and lows in price. Sound familiar?! A possible difference is our relative location to the important five-day moving average, which we have now broken above. Perhaps it will provide support for a different p.m. session trade this go (let's call potential support between SPY $107.35-.65) -- but, hey, Bear Market Rules!

Never Investment Advice

06.09.10 - Five-Day Moving Average Target

Achieved! We are riding that downward sloping line at the mid-day lull. However, internals are very strong and the possibility of a late afternoon continuation move may still be in the cards.

Update: Massive fail when VWAP couldn't provide support. Well, bear market rules and price action was classic; however, it was at odds with internals until very end there. Heavy trend to Pivot underway -- SPY $106. [Guessing we bounce there at least as a first reaction.]

06.08.10 - S&P 500 Support-1 Holds

Price is just about to re-challenge its daily Pivot, which [maybe] promising for the afternoon if we can break that as volatility comes back off on short covering. However, trade is unenthusiastic and internals are still leaning negative. Update: No dice, pivot as major resistance; can S1 likewise hold a second go? Bulls need a higher low on this retest. Update2: We got it, off to the races as originally anticipated.

One-Year Fibonacci Chart

06.07.10 - Sinoidal Search for Value

Internals continue in range day fashion as price sets wide bounds around a flattish VWAP. Not inspiring action with Gold the only class notably higher on my radar.

ETF Rewind - Week 22 (6/4/10)

(Click Image to Enlarge/ ETF Rewind Glossary)

The market slide looked to be abating at the midweek, and then came the Friday Jobs Report with added European contagion fears to boot on Hungarian statements. While the S&P 500 (SPY) finished the week down some -3.6%, Small-Caps (IWM) fell a full -5.3%, with the retreat lead by the Materials (XLB) Sector, down -7.0%. Not surprisingly, only Bonds (TLT) and the US Dollar (UUP) came out ahead, up +2.1% and +2.3%, respectively.

Speaking of which, the Market Rewind ETF Rotation Models have now been in UUP for a full month, up about +3.9% during that period. Meanwhile, unfortunately for the Bulls, it would appear too early to proclaim the market oversold according to technical measures.

Week Twenty-Three of 2010 focuses on Retail Sales and Consumer Sentiment, as follows:

• U.S. Economic Calendar
• U.S. Earnings Calendar
• ETF Rotation Models [Custom]
  

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

Ever have one of those days...

... when you look out your window and ask yourself, "My Lord, how did all those miniature camels get in my front yard?"

Friday Fun - The Machines Are Going to Fail

Enjoy the Party this Weekend Bears!

06.04.10 - Bear Maul

Don't want to touch this until the close unless already short. Next SPY support at $107.50.

06.03.10 - Retail Sales Reversal

Equities gave up yesterday's closing squeeze and are now challenging the daily SPY pivot. Expectations for tomorrow's jobs number are awfully high and traders will see right through any government census induced push -- it's not really surprising to see some profit taking ahead after such a mega-gain yesterday, is it?

I will note that the SPY $111-111.50 200-day moving average reject on a resistive volume spike this morning was fairly classic:

mrkt_rwnd Resistive Volume Spike at anticipated $SPY $111 Level #mkt http://twitpic.com/1tk0fm

06.02.10 - Bull Trend Day

All the hallmarks of a bullish trend day fell into place early in the session. With strongly positive tick and up volume on declining volatility, price looks poised to continue higher into the afternoon now that it has broken its 5-dma. Of course, the final hour has been volatile, so I'll be watching that closely -- but I do like this action going into jobs as a number of mildly bullish divergences in price and breadth have seemingly begun to assert themselves. By the same token, it will be slow and steady that wins the race for the bulls here -- too much at once will get faded.

EasyLanguage Relative Volume Indicator

Several years ago, Dr. Brett Steenbarger proposed the idea of "Relative Volume" on Traderfeed. In this case, the core concept was to adjust intraday volume bars for the smile effect, whereby opening and closing volume are greater than the mid-session trade (see Predicting SPY Volume). Only in this way can the trader assess the normalized significance of volume bars irrespective of the time of day.

In the graph below, you can see the importance of tracking volume as a confirming indicator for prospective peaks and valleys in price action. As long as relative volume is building over and above significant historical levels, it's generally safe to assume that either fear or greed are having their way with momentum. Only when that volume subsides can a new equilibrium said to have been established for a potential pause -or- reversion.


That's what I call "stopping power", and while it doesn't always work so cleanly, it should be a strong alert for day traders, especially when used in conjunction with volatility measures. Furthermore, astute observers may discern a cumulative supportive or resistive effect on price by these spikes.

I include relative volume in each day's mid-day chart post and often refer to it. You may get a better feel for the metric by perusing these past Market Rewind posts:

• Using Volume as Trend Confirmation
• Relative Volume Peaks
• Powerful Trend Days (When not to fade...)

TradeStation EasyLanguage Code

Finally, by popular request, below is my code for relative volume as programmed in Tradestation's EasyLanguage. While experience is a good teacher of what represents significance, an obvious improvement to this example would convert the raw score with a z-score or percentrank. Meanwhile, note both the normalizing and smoothing elements below:

//Relative Volume (c) Market Rewind 2010 inspired by Traderfeed
//Used on SPY 3-min Bars; Requires 20-Days of Data

Variable: NumDay(1), NumBar(0), RelVol(0);

Array: VolArray[200](0);

If Date > Date[1] Then Begin
NumDay = NumDay + 1;
NumBar = 0;
End;

If Time > 0630 AND Time < 1315 Then Begin //Local Time (PST)

If Volume > 0 Then Begin
NumBar = NumBar + 1;
VolArray[NumBar] = VolArray[NumBar] + Volume;
RelVol = Volume / (VolArray[NumBar]/ NumDay);
End;

Plot1(jtHMA(average(RelVol,6),6), "RelVol", Iff( Time > 1310, Black, White)) ; //Local Time

End;

If you don't have the Hull Moving Average function (search jtHMA on the TS forums), the plot line may be changed as follows:

Plot1(average(RelVol,8), "RelVol", Iff( Time > 1310, Black, White)) ; //Local Time

Internet Explorer Fail

Not sure what happened to my blog recently on Internet Explorer, but it's not pretty. In contrast I have had a consistently good experience with Firefox and Blogger if you are inspired enough to switch.

06.01.10 Gap & Fill Inside of Rising Wedge

Internals have a moderate negative bias in spite of the early morning gap fill. The most bullish statement I can make just now, is that the slope of the heretofore declining five-day moving average has finally flattened out -- perhaps we see some noise around this level for some range formation in the days ahead. (Note: A rising wedge in a down market is considered bearish.)