Weekend Review 03/01/2013

Market volatility continued to be a theme this week with a large one day sell off move on Monday that bounced back by Friday resulting in most of the major indexes closing the week higher than last with the exception of the Russell. A chart that I've been documenting for some time now is my SPX_Volatility which keeps track of the number of 1% or more close over close days as well as the number of 2% high to low days on this index. In addition I have a 6/100 period historical volatility reading and the difference between the 15 period moving average and the 30 period moving average.  I use the difference in these moving average as a general market trend filter to distinguish periods of positive price movement with positive momentum and periods of decreasing price movement with negative momentum.

Breaking this chart down, what we know is from this differential that momentum on the SP is waning. Additionally we know that we're in a higher volatility market as evident by the clustering of 1%/2% moves this month combined with an HV reading of 1.3. Looking back at the past year of this chart, April 2012 also had a cluster of 1% days prior to this differential going negative. October 2012 didn't show a clustering before the cross over but did shortly thereafter, and the HV reading began to increase as well.

SPX 

It remains to be seen how this plays out but this is something that is on my radar and I will continue to monitor. Something else I took note of on Friday was the volume spike in 3 SP related ETFs.  Perhaps this is simply related to the first trading day of the month and capital inflow but the amount of volume on the MDY in particularly shows that mid-caps were in play and that this may be a clue as to what big money is doing.

MDY

IVV

SSO

As of now I enter the upcoming week with a cautious outlook. It's been a little difficult sticking to my guns as a number of stocks on my watch list have been showing some follow through on their break outs lately but I believe I don't have a significant edge as of now and am waiting for signs of renewed buying and a decrease in volatility before becoming aggressively long again. I'll bide my time until the market sets up with better risk/reward scenarios for my time frame.