OE3 greases the skids

A quick look at the Philly Financial Index which has broken above the trendline and looks to be headed back to the old all time highs (given time). All the other indexes should follow.

The Monthly(L) and Weekly $BKX Charts
Click to Enlarge

Weekly DJIA Charts

Here are the weekly charts for the DJIA components sorted by price. I've included percentage bands from the 50 week moving average.

Big chart-click to enlarge

Big chart-click to enlarge

MCO update

We are a little overbought here but headed higher.

The SPX and MCO
Click to enlarge

MCO update 6/8/12 - A reversal in the making.

After a rather nasty string of declining days the MCO and SUM Index appear to have reversed indicating that a new rally may be underway. I don't discount the chance of another pullback over the next several days but unless the 10% Index breaks down below -500 again, it should be just viewed as a retest.



The SPX divergences with the MCO
Click to enlarge

MCO Update 5/18/12

We have experienced a general breakdown in this indicator which now indicates the markets need some time to reestablish confidence before a n extended move higher can get underway. While I do not expect it to occur a waterfall decline is still possible. Caution is warrented.

Click to Enlarge A long term view of the market with the MCO and SUM Indexes. We are very oversold on the MCO and should expect a bounce by Tuesday at the latest. The breakdown is severe enough that I believe we need another two weeks to establish a base again before looking for a reliable reversal.

MCO update - dicey but constructive

The last few trading days were a little rougher than I expected but I still expect the markets to work out a positive reversal here. The Climatic Volume Indicator has been in the -25 to -50 area the last four sessions and todays last hour of trading looked like a reversal to me. The SUM Index will probably violate its 13 day moving average tomorrow but this appears like it's a retest from above, a bump and run. Nothing is written in stone but with sentiment so bearish it looks bullish to me.

The SPX for 12/05/06
Click to enlarge

GO

The Summation index is finally turning higher and crossing its 13 day moving average. In the past this has led to rallies lasting a month or more.

The MCO and SUM Index
Click to enlarge

Facebook IPO May 17

The Facebook IPO is set for May 17, 2012. I was curious about how the general market reacted after the last mega IPO for Google. Here are the comparative charts starting in August 2004 until Google peaked out along with the indices. With the current market in a defensive mode, the old adage to "Sell in May" may not apply this time around. The MCO and SUMmation Index are moving slowly towards a buy configuration and the Facebook IPO may be the catalyst.

Click to enlarge

MCO update 4/11/12

The SPX.X, New Highs-Lows. MCO and SUM Index.
click to enlarge

Yesterday I noted elsewhere that the Climactic Volume Indicator was suggesting the bounce which we saw today.

Tuesday: The chart below should be self explanatory. The CVI is made a rather extreme low today indicating panic in the market and the potential for an immediate reversal tomorrow. Of course nothing with the market is black and white and this coould be the start of a waterfall decline like we saw in late 2011 (left side of chart).

However the MCO closed at -315, with the 10% Index at -488 which is quite oversold and the area one would expect to generate at least a healthy . bounce.

The SPX cash closed at 1358.59 below the 2STDEV BB at 1375.14, and below the 3 STDEV BB at 1362.17, just above the July 2011 high at 1356.50. With the SPX below the Bollinger Bands like this we need to see an immediate rally and then a retest of the current lows within a few trading days to reverse the market correction which has been in effect for the last few months. If not...

The SPX.X and the Climactic Volume Indicator
making lows not seen in awhile.
click to enlarge

MCO Update 4/09/12

The McClellan Oscillator dropped into oversold territory Monday. This was accompanied by the Cumulative Volume Index spiking down to -55, an area which has produced bounces in the past. It is not clear whether or not the current decline harbingers something worse to follow.

The Summation INdex, at -2417 is now in neutral territory (zero=+1000) and with the MCO below -200 even if the market begins to bottom here, with the MCO forming a complex reversal pattern, the SUM Index should get below -2000 before turning higher.

Because of the prolonged divergence between the MCO and SUM with the SPX the current spike may only represent a retest of the early March lows. So far the 10% Index has stayed above the -500 threshold which is constructive. All of this looks like a "wall of Worry" correction in a bull market fueled by low interest rates. As long as we don't experience a complete breakdown over the next week or so we can expect a decent rally into the summer months.

The SPX with the MCO and Summation Index
Click to enlarge

MCO Update 3/23/12

The McClellan Oscillator is pulling back to retest the low made two weeks ago. We are in the zone for the 39 TD (trading day) and the 13TD cycle low spots. It might have been Friday but I have a hunch it will probably stretch out a little longer into either Monday or Tuesday.

What we don't want to see here is a breakdown in the MCO and its components. The MCO, New Highs and Summation Index have been diverging from the SPX price, moving lower while the SPX moved higher. Late in a move this might be of some concern. However, since the markets made very oversold lows last October, and fear is still prevalent among the investing public, I think what we are seeing is a quiet correction in stocks as investors remain skeptical and exit the market. On the positive side, the Climatic Volume Indicator (not shown here) has remained well behaved and not given any signals that could be seen as the buying climaxes one would expect if the market was forming a top. Some caution is warranted until the indicators quit lagging the price action but my view remains bullish.

This chart is a bit different than the others. It only covers the last three months with the $SPX plotted using hourly data and the indicators using daily data. There is a slight misalignment but it's small, about 1/2 a day.

The SPX with the McClellan Oscillator
Click to enlarge

$BKX Headed much higher

Some observations on the financial stocks. The $BKX chart is looking quite positive for the first time since the 2008 collapse. Ignoring the 2009 overshoot lows, it has been trading in a basing channel between $33 and $58, with most of the trading confined to an even tighter range between $42 and $58. The recent decline below $42 was the result of fears over the Greece banking issues in Europe.

It is not uncommon, in fact it is more frequent than not, for a basing channel to end with one final selloff below the general channel bottom.

This is precisely what happened as a reaction to the Greece/Euro news and the $BKX made a tidy double bottom reversal, did a modest retest of the breakout point at $42, and promptly punched through its 200 WEEK moving average. Currently at the upper Bollinger Band (20Wk 2 Stdev) we could see a slight pullback in the financials to retest the moving average, or not.

The expected move out of the recent double bottom, projects right back to the top of the longer term basing channel, roughly $58. I would expect some pause there ultimately resolving itself with a breakout move higher. The long term base projects to the upper line at $83 and previous resistance. Over the longer term we should see the $BKX over the $100 level.

If the financials go up, so will the indexes. The SPX could go as high as $2000 in the process.

The Financial Index $BKX
Click to Enlarge

TVIX - Pass the Dramamine Please

The $VIX tracking ETF's and ETN's, UVXY and TVIX had a wild week.

And, just to make things interesting Credit Suisse made the following announcement yesterday which let the air out of the tires. From the PDF (link below)

"Credit Suisse Plans to Reopen Issuance of VelocityShares Daily 2x Long VIX Short-Term ETN (Ticker Symbol: “TVIX”) on a Limited Basis

New York, March 22, 2012 Credit Suisse announced today that it plans to reopen issuance of the VelocityShares Daily 2x VIX Short-Term ETNs (Ticker Symbol: “TVIX”) on a limited basis. The ETNs were temporarily suspended from further issuance by Credit Suisse on February 21, 2012 due to internal limits on the size of the ETNs. At present, the ETNs are trading at a premium to their indicative value. "

http://www.velocityshares.com/news/TVIX_Reopen_Press_Release_22MAR12.pdf

I've stopped trading TVIX because I don't know how to value it. I made money on it the first go-around but have since stayed away from both TVIX and UVXY. The UVXY traded closer to what I expected 2X the daily change on the $VIX but this week neither seemed to be following the $VIX. Since, especially in the case of TVIX which now trades like a close end fund, they can trade at a premium and when the premium unwinds like it did this week, the hedge gets sheered. (Read the prospectus for these instruments)

I tracked the UVXY/TVIX ratio and in the past it ranged between 2.22 and 2.39, with its centerline about 2.29. It finished the day at 2.19 indicating the TVIX is abour 6% over the middle value.

The TVIX closed at $7.16 and the UVXY at $15.66 so either the TVIX is $0.35 overvalued or the UVXY is $0.80 undervalued.

The problem for me is that there are too many variables to track and utilize when making a quick decision as a portfolio hedge. It worked once but I was lucky.

As noted, I had done research on TVIX earlier and decided to stay away from it. The main reason was that Credit Suisse halted share creation because of their capital risk requirements. This essentially turns TVIX into a closed end fund since there won't be any more shares issued in the near term. This means that investors will do what they did and bid the price up on TVIX if they think the market is going to decline (make the $VIX go up)

However, here's the gotcha. The prospectus suggests that the TVIX will approximate the 2X daily percentage change in the VIX futures contract (plus all that other interest rate stuff)

So hypothetically, if TVIX starts at $10 and the VIX is up 5%, TVIX should go up 10% to $11.

Suppose investors are frightened and bid TVIX up to $11.50. This is usually not a problem because the excess should be priced out the next day. If there was no change in the VIX then TVIX should remain at $11.50 (also no change from the previous day's inflated price) but it is more likely it gets sold down during the day to its fair value or $11.

BUT, now suppose, fear makes the VIX rise each day for 3 days, what happens?
Assuming exact VIX correlation and the following VIX changes:
Day 1 = +5%, Day 2 = +20%, day 3 = +5%

Then the expected TVIX changes would be 2X the VIX changes:
Day 1 = +10%, Day 2 = +40%, day 3 = +10%

Fair Value = 10*1.1*1.4*1.1 = 16.94 (expected value)

5% Premium = 10*1.15*1.45*1.15 = 19.18 (value + the premium)

Total premium after 3 days = 19.18/16.94 = 1.13 or a 13% Premium

While my numbers are dramatic, smaller incremental premiums crept into the TVIX price over a longer period. I suspect some hedge fund figured out how to recreate the underlying TVIX using the futures and by shorting TVIX and being long the underlying instruments they capture the difference with minimal risk. And the TVIX collapsed.

In general I prefer the UVXY which has the same leverage and less of a tendency to accumulate premium. But when trading the TVIX, one must watch the UVXY/TVIX ratio closely and if it gets out of the range I indicated, bail out or switch instruments.


Here is what the ratio chart looks like:
The UVXY/TVIX ratio
Click to enlarge

Here is the price action for the week ending March 23.
Price action on he UVXY TVIX and $VIX
Click to enlarge

Adding charts here for the ^TVIX-IV which essentially is the fair value of the TVIX. If one is trading the TVIX, it would pay to keep ones eye on both the TVIX and its relationship to the ^TVIX-IV, as well as the ^VIX and what the genera; market is doing.; ;-)

Price action on he TVIX-IV TVIX and $VIX
Click to enlarge

And from Bloomberg, here is a month long chart of the TVIXIV vs the TVIX: The distance between the green line (TVIX) and the orange line TVIXIV) is the premium:. For most of the life of this instrument, the TVIX and TVIXIV have remained close to one another which is what one would expect. The recent divergence and expanding premium of the TVIX over the underlying TVIXIV was in part caused by Credit Suisse suspending the issuance of new TVIX shares as demand increased.

Price action on he TVIX-IV TVIX and $VIX
Click to enlarge

Price action on he TVIX-IV TVIX, $VIX and UVXY
Note that the UVXY closely tracks the TVIXIX
This chart should update so it is the most recent 5 days
Click to enlarge

MCO Update 3/5/12

We have been in a correction for the last two weeks. There should be a 13 day cycle low early this week with the completion of the correction in about 13 days after that. The most reliable cycle I see is the 39 day which acts out as either 4 - 10 day wiggles or 3 - 13 day wiggles. The MCO is oversold but not oversold enough to be "oversold"

We might see the MCO get down to the -200 zone, or not since everyone is either looking for a correction or a dip to buy. Many stocks have already dropped off their short term highs, and this is being masked by the index favorites (AAPL, IBM).

All in all this is a remarkably well behaved correction. The Climactic Volume Indicator, hasn't moved out of the 'normal' range for over a month, no spikes, indicating no froth or panic.

Still bullish, buy the dips.

The $SPX, MCO and SUM index
Click to enlarge



$SPX showing the 13TD cycle
Click to enlarge

NY AD Line and NYSE Rule Changes

Even as we momentarily pause to take a breather, the markets continue on their upward climb. The chart below includes the McClellan Summation index which recently flirted with the 5000 level. I think it is important to note that two changes in the NYSE trading rules have altered the behavior of the AD Line.

In 1991, the NYSE switched over to decimal trading which has both increased trading volumes and changed the rate of ascent of the AD Line. Decimalization has increased the likelihood that a stock's close will be up or down on the day. Since aggregate down moves tend to be larger than up moves it means that the upward trend on the AD Line should be steeper, which is what we see. The AD Line is in new high territory and as a result I expect to see the SUM Index make new historic highs over +6000 this year before the market finally peaks.

The $SPX, NYSE AD Line and the SUM Index
The chart shows the dates of two NYSE rule changes which
have affected trading volumes and the AD Line.
Click to enlarge

NYSE AD-Line Hitting New Highs.

The NYSE Cumulative Advance-Decline Line from March 2009
Making new highs and riding along the upper Bollinger Band
Not a top yet
Click to enlarge

A bit overbought but still headed higher

The bigger perspective on this market move.
The SPX, MCO, 10% Index and Summation Index.
The period covered is from late 2008 to 2/3/2012.
Click to enlarge

In spite of all the negative commentaries, the AD Line continues to grind higher along with the market indexes. No doubt we will have a correction at some point but I don't think it will be the start of a new bear market.

The bottom chart is the Summation Index which is an intermediate term trend indicator. I've included two moving averages, an 80 day and a 160 day. Look back at how the SUM index and its moving averages behaved, at post market turing points and then compare them with the current configuration. We are about a month into a strong upward move. One should expect the rate upward to moderate somewhat fairly soon, but it also looks like the SPX is headed back to the old highs by the end of the year.

MCO 2-2-2012

Same old, same old. Once in a lifetime.
The SPX with the McClellan Oscillator
Click to enlarge

Wed Jan 25, the market grinds higher.

No chart but not much has changed since the one in the previous post. The market continues to grind higher in an orderly fashion. It appears to be correcting its excesses internally as individual stock groups rotate in and out of favor.

The SPX cash closed at 1326.06 with the upper 20 day BB at 1331.44. So there's about 5-8 points of clear air overhead before the SPX gets above the 2 stdev BB. The 3 stdev BB is 25 points higher and a potential target roughly in the 1350 area.

The MCO finished at +174, in overbought territory but below the +200 level which has produced spike reversals. The MCO has spent 16 of the last 22 days above +100. This means that the 10% Index has been above the 5% Index by 100 or more points for most of the last month and indicates a strong upward trend in the AD line.

The 10% Index finished at +624 today with the 5% Index at +450. These are readings which are equivalent to a big thrust move in a MACD indicator and though they are overbought do not signal a top until they form a negative divergence with the price.

The Summation Index is at 3929, roughly 900 points above its 13 day moving average. It's been above the moving average for about 20 days and my MACD on the SUM Index indicates it would take at least 10 trading days to stall it enough to force a cross below the 10 day MA.

Finally, the Climatic Volume Indicator is NOT SPIKING, its 10 day moving average is a +25 (bullish neutral) It's been 15 days since the last minor spike above +50. The way I am reading this is that so far there is no rush to get in the market, no frothy distribution.

Sum Index update - Jan 19

The SPX with the MCO and Summation Index
Click to enlarge

A generally bullish configuration of these indicators. The MCO and 10% Index are slightly overbought so we could see a pause to refresh at some poing in the next few days.

Top Plot: The MCO has been above 100 for 12 of the last 18 sessions. This indicates that AD line is now strongly trending higher.

2nd Plot: The CVI (Climatic Volume Indicator) is well behaved. Its 10 day MAVG is at 24 which is bullish but the raw CVI has been less spiky indicating that the trend is strong but less nervous.

3rd Plot: The SPX with 2 & 3 STDEV Bollinger Bands

4th Plot: The 5% and 10% components (moving averages of the AD line) are trending higher at about the same rate (they are parallel)

5th Plot: The Summation Index (dots) with its 13 day MAVG.
The SUM Index is above 1300 and in the region where stocks start to make sharper price moves higher. The CVI doesn't show this just yet indicating that the trend is grinding higher without drawing too much attention to itself. I view this as strongly bullish because it indicates we haven't reached the recognition phase yet. The SUM Index tends lag the actual market turn since it doesn't turn positive until the MCO is above zero. It is currently above its 13 day MAVG which indicates it's trending bullishly higher.

6th Plot: This is a 12-14-15 MACD on the SUM Index. Seems to be reasonably good at indicating turns in the SUM Index.

Bottom Plot: This is a default 12-26-9 MACD on the SPX for reference.

SUM Index update

The SPX and the Summation Index
The SUM Index recently crossed above its 13 day average
which is constructive for further market gains.
Click to enlarge