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.