Ratios to Reason $SPX

A weekly look at 5 indicators that depict the current market environment.

$BPSPX:$VIX = 97.31

$BXM:$SPX = 70.22

$CPMKTE:$CPMKTB = 39.67

$SPXA50R:$VIX = 87.58

$SPXHILO:$VIX = 15

The only glimmer of bullish hope my indicators offer is a 50% increase in the $SPXHILO:$VIX since my last analysis here. Otherwise, the bear market remains intact, and until the VIX can make a sustained move down, I suspect we will see increased market weakness. I'm eager to see how Barclays new volatility ETN's will trade, especially in light of the markets lack of confidence in their risk management, reflected by the $3 stock price. New products offer new strategies, and though their entry seems late to the party, the potential for increased diversification is wonderful.

Manic Markets

The market continues to churn in a wide range, but there are some signs of change.

Hedged trading has begun under performing the underlying index, signaling short term bullishness. Volatility is falling, but remains high, so stay cautious.

Tuesdays selling may be a capitulation point considering the ratio of down/up volume.

Up/down volume on Wednesday is in an uptrend, so look for markup and accumulation.

The NAMO has stopped falling, and though it remains below 0, it could turn bullish fast.

TBT has showed impressive strength in the last few days, even during the sell off. This is my favorite long candidate, target ~50.

The weakness in the VIX is encouraging, but one day does not make a trend. I'm still very cautions, and more liable to sell rips than buy dips. Nevertheless, if Treasuries continue to fall, I will begin to get long.

Historical Indeed

A new guy moves to the White House every eight years. I think the real news is here; today was the biggest Dow drop on inauguration in history.

Volatility is screaming upwards, and clearly fewer stocks are in bullish formations. The tape still warrants selling the rips, and I suspect we're in for bigger dips.

Buy write strategies continue to outperform the underlying index, indicating bearish sentiment as the market seeks to hedge long positions.

The momentary bounce in the NAMO was snuffed out by torrential selling. Unless you can move quickly, defense wins this game, so don't jump on the equity train.

The scariest chart I follow is the NASI. A run to the LEH collapse lows would be a doozy. Like all of the charts in this post, I have no confidence in any bounce until I see an X.

Amid the increasing volatility, fewer stocks are trading above the 50dma, so investors will probably continue to sell their increasingly worthless stocks.

The collapse of RBS and BCS should be making headlines every 2 minutes, but all eyes and ears are tuned to the $170 million party in D.C. A massive liquidation could be in the works as Britain finds itself trapped between a collapsing Pound and hemorrhaging banks. Cash remains king for all but the most nimble traders and disciplined short sellers. Breath deep.

Cash Is King

Market conditions continue to deteriorate as panic spreads around the globe.

My SPX indicator made a new O, signaling increased volatility and fewer stocks in bullish formations. Buyers should step to the sidelines and wait till the current rush to safety subsides.

The buy write index continues to outperform the underlying SPX, reinforcing my bearish sentiments. A break of the upper Bollinger looks to be in the works, so stay defensive.

Equities have entered a new downtrend relative to bonds, so despite talk of a Treasury bubble, there is no appetite for risk.

The Dow Jones World Index is now below the 10sma, and since the global equity markets move in harmony, buyers should beware the primary global trend.

Fewer stocks are trading above their 50dma amidst rising volatility. Any trading on the long side is best left to billion dollar funds that can provide the liquidity being sought.

Another wave of fear is sweeping the markets, and there is no telling when it will stop. The possibility of another massive bank failure looms; Citigroup can't catch a bid despite a headline deal with Morgan Stanley. SRS and FAZ are the best vehicles for making money intraday, but the incredible volatility requires strict discipline and mental stamina.

Ratios to Reason $SPX

In an effort to create more structure for this blog, I'm re-posting 5 charts that depict various trends within the $SPX. In the future this selection will be posted during the weekend.

$BPSPX:$VIX = 139.61

$BXM:$SPX = 68.88

$CPMKTE:$CPMKTB = 41.34

$SPXA50R:$VIX = 122.16

$SPXHILO:$VIX = 10.9

Why am I regurgitating this mass of pretty but confusing information? The charts represent aspects of the market that are not revealed by the price of the SPX. 3 of the 5 graphs relate percentage:volatility, and currently they are bearish, trading in downtrends towards 0. If you're buying stocks, it's prudent to wait for a growing number of bullish stocks trading above the 50dma making new highs.

The other two illustrations are a bit more conventional. One measures the spread between a buy write strategy and the underlying index, creating an inversely correlated derivative of the SPX. Lastly, $CPMKTE:$CPMKTB is the relation between US Equities and US Bonds, useful for discerning the appetites of investors. Both of these indicators are signaling more downside to come.

In time, I hope to find a better method of aggregating the information presented in these graphics. Any suggestions towards such an end would be greatly appreciated.

Signs of the Times $SPX

I'm a huge fan of percentage/volatility charts, but due to their underwhelming popularity, they're confusing. Hopefully someone understands their value besides myself.

Although my NASDAQ indicator has gone bearish here, the SPX is holding on for dear life. There are fewer bullish stocks and volatility is rising, buyers beware.

The BXM/SPX spread has broken resistance and is running to the upper Bollinger, something to interpret as increasingly bearish.

The percentage of SPX stocks trading above their 50dma is falling and volatility is increasing. The environment is growing more difficult for investors.

SPX stocks making new highs are dwindling amidst the rising volatility, another reason to be careful if you're buying stocks.

The one glimmer of hope seems to be the rising number of NASDAQ stocks making new highs, but since this is based on a 10dma, I suspect it will turn down soon.

Investors should get defensive as traders look to short this weakening market. Real estate and financial companies could see another round of selling, and I'm keeping a close eye on the price of preferred shares via PFF or other ETF proxies. The energy sector looks weak as well, so trade what you see and not what the pundits spew.

Ratios to Reason

There is evidence of new trends emerging in the market.

US bonds look ready to head lower relative to their foreign counterparts. Will another cycle of credit shock prevent this trend?

Although the SPX indicator remains bullish, the NASDAQ is now bearish for the first time since the end of November. This implies an environment of increased volatility with a lower percentage of stocks trading above their 50dma.

The spread between the SPX buy write and its underlying is currently bearish because it is rising. Moreover, the 10sma is beginning to flatten, so a break of recent resistance would be even more bearish.

The Yen is rising against the USD and that doesn't bode well for equities. Perhaps it will retest the recent highs before the BOJ acts again.

Treasuries are technically in a downtrend relative to gold, and that puts the dollar in jeopardy. Perhaps another round of credit crisis will bring money back to the ol' U.S. of A.

The market looks poised to break lower, but there isn't enough cause for alarm to run to the exits yet. Increasing volatility is certainly a bearish symptom, and considering the massive run up since the November lows, a move lower is quite reasonable. The numbers being released Friday are utterly meaningless, but the reaction will be critical.

On a side note, it's good to be back online with a working computer. Although the imbeciles at Office Depot raped my face and charged 100+ clams for an AC power adapter, I will have the last laugh; their awesome 14 day return policy is effectively a free rental. Now that I've bought another on Buy.com for 29.99, maybe I'll swallow the power chord and floss my intestinal tract before returning this P.O.S. adapter to the Office Despots.

Stocks 'N' Bonds

A few things to watch in the coming week.

Despite today's pullback, my primary indicator remains bullish, so I'm buying the dip.

The SPX buy write is lagging the underlying index, so the bulls are looking good for now.

The spread between equities and bonds looks ready for a breakout, potentially to the upper Bollinger.

HYG, which I've been a big fan of since here, had an EXPLOSIVE day. Fixed income continues to provide stellar capital gains as investors scramble to grab yield in this 0% environment. Taking partial profits is probably a good idea, but such decisions are dependent on your trading time frame. 88 looks like MASSIVE resistance.

JNK is following in the footsteps of its higher quality brethren, so keep an eye on this lovely ETF.

The market has had a stellar run of late, and conditions continue to grow more bullish. Another day of pullback and consolidation would be healthy for the bulls, but I'll let the tape do the talking. I'm maintaining a conservative position size per trade, but it is growing as the volatility decreases.

Tuesday's Tidbits

Hooray, an up day! Here are some things to consider.

My bullish SPX indicator lives to see another day, perhaps it'll make a new X by the week's end.

FINALLY, the BXM/SPX spread is heading lower, and that is a sign of more aggressive risk taking which is good for equities. Due to the overbought condition, a gap open tomorrow in the SPX should be faded if this chart can't get below the 10sma.

The equity/bond spread has stabilized over the last month, but I suspect we're in for a breakout to the upper Bollinger.

Hrmmm, this is tricky. The Yen might be worth getting back into, but that doesn't jive with my reflation scenario. USD/YEN is a must watch because of the chart below.

Japan has broken its massive downtrend, and looks capable of hitting the upper Bollinger. If the Japanese market is rising with a strengthening Yen, I think I'll go invest in Japan to take advantage of the equity and forex trends.

Jibbidy jabbber jab, I don't want to repeat myself tonight. I could talk this shit all day, but it's pointless when I have better things to write. We're still going up, but don't bet the farm, because the decreasing volatility is still high and can make you loose your shit faster than a hooker with rubber sheets.

Digesting Indecision

Not much action in the equities market this week.

According to my indicator, the SPX has managed to stay bullish, but it is very close to resuming a downtrend.

The buywrite/index spread is rising (bearish), but it is in a resistance area, and any turn around would be bullish.

 

The NAMO has turned positive, which is good for equities.

 

The summation index continues to rise, another reason to be positive on stocks.

 

Finally, the 30Y Treasury is beginning to show weakness relative to Gold.  This may signal an end of deflationary fears.

 

Until volume returns to the market, any move should be view with suspicion if you’re a trend trader.  Equities remain range bound, so I’m focused on opportunities in fixed income.  I suspect the primary direction of 2009 will be revealed within the first two weeks of January, so I will continue to sit patiently, watch Twitter and play the Ukulele during market hours.