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.

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.

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.

Monday Mutterings

I hope to God that the chart below is a misprint and not a premonition.

If bonds make a move like that, this crisis is going to take a turn for the worst.

Though we closed positive Friday, my indicator fell, suggesting a bearish divergence in an uptrend. Buy on the dip is still in play, but sell on the rip may soon be in order.

The spread between US Equity and Bonds is battling with resistance. A resumption of the downtrend is likely, but has yet to be confirmed.

Yen versus USD continues to be a winning trade.

Priced in gold, the 30Y Treasury has pulled into support. Until this trend breaks lower, inflation plays will move lower or sideways.

This market is giving lots of mixed messages. I'm expecting range bound trading if volume is low, and a volatile break down if shares start to move. This means I'm most unprepared for high volume accumulation and mark up, so I will be watching for such action like a hawk.

On another note, I'm starting a computer service company in Seattle, so if anyone has arcane suggestions, please feel free to leave a note.

Tale Of The Tape

This market continues to exhibit an upward bias, so keep buying the dip. Risks remain high.

The markets haven't looked this bullish and stable since Obama was elected.

The spread between Buywrite and Buy 'N' Hold indexes made a new low and violated the lower Bollinger Band, signaling a potential trend change.

The falling spread between US Equity and Bonds indicates an increasing appetite for risk.

The Yen vs the Dollar continues to look strong. Though it is a bearish trades, it hasn't suffered in the recent rally.

The McClellan Oscillator is overbought by recent historical measures, but we're in unprecedented times.

Shorting this market is suicidal for all but the quickest. Ride the wave up, but know that it will come back down. I'm interested in accumulating breakout stocks on pullbacks, so I'm not bottom fishing. I will hedge by getting long SKF or buying Yen.

State Of The Market

A few market signs for the lost. The following precipitous graph is an example of the impact the financial crisis is having on the real economy.

The BDI indicates how much shippers get paid for carrying freight. Due to the unwillingness of banks to write letters of credit for merchandise, shipping is mired in a death spiral.

US Bonds continue to outperform US Equities.

The NASDAQ continues to hold on by the skin of its teeth, but with the risks so high, holding equities overnight is a game for people much braver than I.

Less NASDAQ stocks are above their 50dma, but if the index doesn't collapse tomorrow, we could see a short squeeze.

Nevertheless, the NAMO is a tad overbought, so I expect choppy trading for a day or two. Time to take photos, sculpt, and learn to play music.

The market is still volatile and thus provides great opportunities. On the other hand, my trading costs are starting to rise as I get whipsawed and suffer prolonged cognitive dissonance. I'm trading with small amounts, trying to find/keep a rhythm, but nothing seems quite clear after today.

P.S. Has anyone else in the blogosphere suffered ISP problems during very volatile market days?

Turkey Talk

A few ratios and some interesting developments.

US Equity / US Bonds have reached a prior level of support. Watch for resistance.

Another day of advancing volume significantly outweighing declining volume.

The US Dollar looks ready to break its recent and sharp uptrend, implying slowing momentum.

Silver is putting in a nice base, and is beginning to look like a buy.

More evidence of a potential reversal in sentiment is coming to light, but risks remain high.