Weekend Review January 29th, 2016

10 Day Buying-Selling

During correcting markets it is not uncommon to see multiple days with intraday swings in excess of 2% on the indexes.  While it was positive to see multiple indexes close near their highs with 2-3% moves at the end of Friday's session, it was more promising due to broader based buying.  One means in which I keep track of that is the differential between buying and selling of stocks over a 10 day window.  What has occurred over the past two weeks is one of the lowest readings since I've been tracking this swiftly become positive.

This positive can also be seen in the new leadership scans run which were showing 99 stocks at the end of last weeks session plump up to 368 this week.

New Leaders 338

While some of my shorter term scans are perking up and my belief is that in the least a tradeable bottom is now in place, the next step is waiting for my momentum scans on my time frame to plump up along with stocks setting up favorably to increase.

Weekend Review 01/22/2016

While I view the market as binary, I choose not to do so through the prism of bull or bear market, but whether or not a market is conducive to my style over my time frame.  One of the reasons I take this view is that it is on my terms and not contingent upon someone else's perspective, belief, or just plain bloviating.  Recently I've seen a number of views as to whether the market is currently in a bear phase or not.  I've seen: We're in a bear market because the Russell is down over 20%.  We're not in a bear market because the SP is only down 10%.  We're in a bear market because the number of NASDAQ stocks above their 50 period average is below 10%.  We're only in a correction.  We're about to top after a 7 year bull run.  We're not in a 7 year bull run because the Russell dipped 20% in 2011.  Confused yet?

This weekend I'm not looking at breadth metrics in particular.  Weakness beget more weakness the past couple of weeks and expectation of a reflexive rally failed to produce.  So now my expectation of a strong bounce has only increased and I continue to view this as a high probability event.  Whether it is conducive to trading on my time frame or not is a different issue to assess.  What I am looking at this weekend is my scans to see if there are potential candidates.  The reality of the situation is that there really aren't many to look at since my scans are barren to begin with.

One scan that I run it to look at stocks that have made a $15 move over a month period.  There are only three that met the scan conditions.

$15

Another I run is is stocks that have shown consistently steady momentum readings.  There are 9.

Slow and Steady

A scan to check for stocks that move my expected return over time frame shows 99.  If I limit this by the stocks that meet my momentum requirements there are 17.

Return over TIme Frame

As I'm primarily a long oriented swing trader the scans I run daily tell me everything I need to know about my market.  The number of stocks hitting new lows vs. new highs over different time frames tells me what I need to know about the general health of the market.  What anyone else says shouldn't be informing me.

This is often easier said then done.  As a market participant I believe that most of us have the best intentions but fall into the same pits.  Most of us at one point int time have said we would stop doing something or listening to somebody, yet not follow through.  Most of us have said at some point we would improve one thing about our trading, yet not start.  As some point we've likely said we'd simplify our charts only to add one more indicator after rebuilding them from scratch.  There's a good change we've said we'd simplify our watch list and vehicle selection only to open up the restrictions when there weren't enough candidates.

We're currently in a chippy market when everybody has something to say and expect others to appreciate their 2 cents like it's a nickel.  There will be calls of a crash.  There will be post of people claiming to nail the bottom to the penny.  If ever there are times to focus on controlling what can be controlled and hermetically sealing oneself in a vacuum it is now.  If there is a time to listen to the market alone it is today, with the market closed. Put on a headset and listen to some tunes, the only respectable noise to be letting in right now while doing your own analysis.

Weekend Review 01/08/2016

After nearly a year long hiatus which I may talk about another time, I enter 2016 much like I did 2015.  I'll consider this a tune-up post to get my head back into the game.

It doesn't take more than a quick glance of nearly any index chart to see that the market has been less than conducive to trade on my time frame, and I suspect many other's time frame as well.  This week I decided to take some notes and observations on higher time frames than my usual to get a slightly bigger picture perspective before burrowing down.

I decided to look at a monthly chart of the indexes using a 6 and 24 period moving average.  The logic behind using these two averages is that I quantify my universe by 3-6 month momentum, and that momentum higher than a year tends to mean revert.  One of the things that stands out is a cross of these two averages happened rarely over the past decade and a cross to the upside signified a prolonged upturn in a market cycle while a cross to the downside signified a turbulent period.

SPY Monthly

QQQ Monthly

IWM Monthly

If past occurrences of this are a road map to guide us down the path ahead, treading lightly and being nimble until more concrete positives pave the way might be worth keeping in mind over the next 2-3 months.

On a weekly time frame using GMMA, infrequent occurrences are also forming as multiple moving averages continue to roll over on a higher time frame with the IWM taking the brunt of it for the longest.

SPY GMMA Weekly

QQQ GMMA Weekly

IWM GMMA Weekly

While I think on a higher time frame there are going to be some challenges ahead as the market shakes off whatever it is currently worked up about, there are some positives to be mindful of in the near term.  First, the percentage of stocks below their 40 and 200 period moving averages are in the zone where bounces tend to happen and bottoms get formed.  This suggest that there is a high probability of a snap back rally which can be taken advantage of through the indexes more easily than stocks.  It's simpler to find a vehicle selection from index ETFs then anticipating which type of stocks might see the benefit of a bounce: value, growth, momentum, most oversold, setting up best, fund favorites etc...

% of Stocks > 200 MA

% of Stocks > 40 MA

In addition one of the indicators I follow is in a zone where over the past couple of years there has been a significant low in place on the indexes.  There are a few situations where this has undercut the 6% threshold but this would just favor a probable snap back.

% of Stocks > 25% in a Quarter

Two scenarios I envision Monday morning are a gap down flush which would offer a low risk opportunity to go long from my perspective, or a gap up which would also offer an opportunity but one I'd approach more cautiously.  Shorter term there will be some tactical opportunities and longer term I believe there will have to be some strategical adjustments to be made until the market gives greater clarity of a resumed up trend.