November Weakness

November usually begins the stock markets best six month period. Already next week is options expiration week (again, a usually bullish period with the DOW outperforming other indexes (see here for details).

However, the bullish tendency may not play out so dramatically this year. First of all, we are headed into the weakest days of the month, which this year correspond with options expiration week (more details here.

Second, volatility is rising, but has not yet entered a spiking stage. Although still at low levels, any rising trend should be taken as a warning sign when the markets have traded with such low volatility for so long.

Third, according to McMillan's research, weighted Put/Call ratios have moved to sell signals from extremely low levels. This is likely to signify SPX will struggle in the near term. Recent market leaders, Facebook and Netflix, P/C ratios rolled over to sell signals from very low levels this week. This will likely mean a change of leadership in the market going forward - potentially by oil stocks as they have been outperforming along with consumer staples and real estate stocks.

September Monthly Market Review

The S&P 500 finished the third quarter by registering yet another new high Friday to mark its 50th occurrence this year as the bull market continues in US stocks. The main US index appreciated by more than 4% over the past three month - its 8th straight quarter of gains. Recently, moves have been tiny fluctuating just 0.3% daily. As such, the CBOE Volatility Index (VIX) is again below 10. The Dow Industrials ($DJI) captured a 5.2% improvement during the same time-span. The NASDAQ grew 5.7% even with Apple’s (AAPL) recent struggles to see its fifth straight quarterly improvement.

Globally, the STOXX Europe 600 captured a more modest 2.3% gain over the last quarter with better numbers coming out of Europe. The Japanese Nikkei had its best month of the year with a 3.6% surge in September. Australia has not fared nearly as well after falling for a fifth straight month with the weakness in commodities (especially iron-ore). Emerging markets were also weaker recently.

Gold Futures recorded a disappointing 2.8% loss for the month of September, which is the largest single month drop in nearly two years after the U.S. dollar finally appreciated as the long awaited US tax reform pressuring the 10 year Treasuries back above 2.3%. Crude oil witnessed a 12% improvement over the third quarter with most of those gains coming in September alone as all 4 weeks of the month were positive and pushed Oil Futures back up above $50 a barrel.

The S&P 500 was strong in the second and fourth weeks of the month. It is extended nicely above its 50 day moving average while moving bullishly higher.

September's greatest moves came from the Energy and Financial Sectors, followed closely by the Materials. Utilities and Consumer Staples fell. This sector breakdown is bullish for the market going forward.

The US medium and small companies did extremely well during the second and fourth weeks of the month, also. They have been leading the market higher which is bullish for US equities. After recent weakness in August, the 50 day moving averages are now curling higher as they maintain higher than the 200 day moving averages.

Non-US developed market traded choppy but higher during September. 

Emerging markets did not perform as well in September. They sold off during the third and fourth weeks, and spent two days below the 50 day moving average before bouncing back on the last day of the month. This makes emerging markets only tentatively bullish for October. 

Real Estate was choppy until it broke down in the third week of the month also. It now trades below its 50 day moving after bouncing off the low prices of August. While this is not outright bearish, Real Estate looks like it may see some sideways action in October. 

As noted in the S&P 500 sector graph above, commodity producers (energy and building materials companies) outperformed in September. Most of the gains were made in the first two weeks of the month as a continuation from the end of August. 

Commodity prices did not support the move seen in the graph above. USCI could test its 50 day moving average in October. 

US government bonds pulled back in the last three weeks of the month. After an initial test of the 50 day moving average, AGG has now traded three days below it. This could be a set up for a stronger bearish move in bonds, which would support the continuation of a bullish move in equities. 

Inflation indexed bonds also suffered in last three weeks and are now trading below support after a failed bounce off the 50 day moving average.

Non -US bonds look weak. BNDX has made a break of its 50 day moving average and now traded three consecutive days below that level. All the bonds have upward sloping 50 day moving average that are above their 200 day moving averages, so bearishness is not overwhelming at this point.

Much of the bond's bearishness can be explained by USD bullishness, as witnessed in UUP's action in the last two weeks of the month. UUP has now traded above its downward sloping 50 day moving average for 4 days. The strength of USD bearishness is weakening.

February Monthly Market Review

February was extremely bullish for the US equity markets, Real Estate, and even bonds. Commodities and Natural Resource companies were weak. Some new bullish trends are developing in bonds.

The S&P 500 really was strong during the middle of the month. It saw a bit of consolidation towards month end.

The US mid-caps showed more of a pullback at month's end, but still had pronounced gains for February. 

The US small-caps had a false start to the month. As with the larger cap stocks in the US, mid month was bullish. About half of the month's gains were given back in the last five trading days of February, however. 

The non-US markets also did well, similar to the smaller caps in the US, after a flat start and some decent gains, the last three days sold off. 

Emerging Markets saw strength up until the last three days of the month also. 

Real Estate had a big bullish move in February. RWO broke above its 200-day moving average and is dragging its 50-day moving average up behind it. This looks like a new bullish trend is developing. 

Natural Resource companies led the sell off at the end of the month. The HAP ETF below is sitting right on its 50-day moving average. It must hold this to remain a bullish momentum. 

Commodities are still in a downtrend, with USCIs staying below its 50-day moving average after a mid-month test of that level. 

Bonds are starting a new bullish trend, it appears. The world bond ETF - AGG - has tested its 50-day moving average twice now, and both times has bounced very bullishly. The 50-day moving average is rounding up.

Non-US bonds also performed well in February. The strength came in the latter part of the month. BNDX broke above its 50-day moving average which is also now moving higher.

US inflation indexed bonds may also be starting an uptrend. The TIP ETF has traded above its 200-day moving average. The 50-day moving average is trending higher and could cross above the 200-day average. This would signify a new bullish trend. 

The USD is struggling to trade higher. UUP has witnessed resistance to any further gains above its now flattening 50-day moving average.

SPX rebounds for 6th positive close

All indexes sold off in the first hours of trading today, but rebounded and closed higher. This relentless bullish market is continues to press higher. NDX has now closed positive for 8 consecutive days.

The only signs of the market topping out soon are coming from the fact that the volatility indexes are buried at multi-month lows and the SKEW remains trading near or above 130 for almost a month now.

The VIX is below 11 again, while the 'older' measure of VIX, called VXO, now trades under 10. When the VIX trades below 11 and VXO trades below 10, these are usually good indicators that the market will retreat to levels much below where the market currently trades in the next months. In other words, VIX will rise soon from these levels.

As VIX falls, I bought some VIX 11 calls that expire in two weeks. I paid $1.45 for these, but after today's bullish reversal, they only trade for 85 cents. All the better to add more to the portfolio either tomorrow or later this week. 

As this is options expiration week, bullishness is not uncommon. It's what the market does at the end of this month is important. 

SPX is currently trading above its 4 standard deviation Bollinger Band based in implied volatility. If SPX closes below the 3 standard deviation BB level, around 2320 currently, this will give a strong sell signal to the market. 

RUT rebound leads markets higher

Today the RUT put in a tremendous performance, returning to the top of its recent range. I have to watch to see if it can make it into new high ground like the rest of the markets have already.

The weekly chart of the RUT has an hanging man candle pattern, and a bearish cluster on the Market forecast chart. This ultimately could be the top for the RUT, or very close to it.



I am not yet getting any more bearish. Instead, I rolled out the RUT 1385/1390 call spread until next week's expiration at higher strikes of 1395/1400 for a credit of 5 cents. This way we are safer further above current resistance levels and have more time to maneuver if the market is again bullish tomorrow.

The SKEW fell today to 129, as the short term volatility collapsed to below 9! I will continue to move the call spreads out and up, if needed to ensure any pullback is caught.

More bullishness with NDX!

Most indexes were flat today, but again the NDX knows only how to rise.

This gave me a chance to put on some more bear call spreads above the trend line for next weeks expiration. The chart below shows the set up.

The NDX is riding the top of its trend line started back on November 8, 2106. The trend marks to upside at 5265 by next Friday. I am interested in selling premium on calls around that level. Importantly, the RSI (bottom gray line on the chart below) is again in the overbought zone, limiting further strong upside moves.

Today I added to the 5260/5270 NDX calls spread for $1.15. I also rolled the 5150/5160 NDX calls to next week expiration for a debit of $2.00 which leaves me with $3.25 credit still.

I also closed most of the RUT put spreads for break even, as the RUT is very weak. The call spread at 1385/1390 that I sold just a few days ago is now nearly worthless. It expires Friday.

The SKEW rose nicely again today to 134, while as the market s fought back to gains, the volatility indexes rose.

More bullishness on NDX

The big technology companies continue to push higher, while the RUT suffers. This trend has been quite clear now for sometime. In fact the NDX has not closed below its 10-day moving average since January 2, 2017, and it's only touched it four times intraday.

The market started off strong, but lost all its mojo and closed near its lows. I was able to sell some more NDX calls - this time I sold next week expiration's 5260/5270 call spread for 85. This would be above the current trajectory of the current channel that the NDX trades in. As the market is likely to show some signs of faltering later this week after two decent positive days, I think that this trade is rather a safe bet. 

Again Sideways...

The Market cannot breakout and yet refuses to breakdown. This is typical sideways action until something comes along and pushes the market out of its comfort zone. The push will not likely be a bolt higher, as volatility is so low and has been for so long. 

Friday was the big bullish day for the market. It pushed all indexes up to the areas around their previous highs, and cancelled out the bearishness from island reversal patterns I pointed out in the monthly review. In fact, the market forecast is giving a new buy signal today. I need to monitor this carefully. 

The RUT never broke out to a new high and remain within its widening channel. This channel is a long flat sideways move originating back in early December. 

 

Usually, with sideways trading I would be using Iron Condors with deep out of the money calls and puts. I am not doing that now, for two reasons. 

First, the SKEW remains high - although back down to 131 today. This makes the OTM calls cheap, forcing me to trade close to the money. 

Second, the risk is to the downside. With VIX so low, playing with puts is playing with fire if the market starts to sell off. Vix can explode higher and make the puts extremely expensive to move out. 

Instead, I putting on at the money, or close to the money call spreads for large premiums. This way, if I have to move them out, I will still have a decent credit to work with. Also, any downswing is much more profitable, so they can be traded very easily. 

I have this weeks NDX 5150/5160 call spread on for a credit of $5.20. I added a RUT call spread to the portfolio on Friday, also. I sold the 1385/1390 expriring this week for $1.70. I did add a put spread below the channel above 1335/1325 for 58 cents today also. 

January Monthly Market Review

January followed the rule book and acted pretty much in line with what historical trends had predicted. Importantly, the first five days of trading were bullish, as with the entire month for the US equity markets. This is generally a bullish sign for the year. 

US large cap stocks, represented in the graph below of the S&P 500 ETF SPY, were flat after an initial push higher in the first days of the month. There was an attempt at a breakout to new highs, but the failed at month's end. The market witnessed a small gain for the month. 

The mid-cap stocks were flatter throughout January. They also tried to breakout of the previous flat range they have been in since early December. This turned out to fail and now the charts have an ominous island reversal pattern highlighted with a blue circle below. 

Small caps never broke above their resistance from early December. They also never really broke down, but instead traded in a flat pattern for most of the month. They were the weakest of the three US stock indexes and actually posted losses in the month of January. 

Non-US stocks were actually much more bullish than Us stocks in January. They were in a good uptrend throughout the month, with a slight pullback to previous highs at the end of the month. The bounced sharply off their 50-day moving average as we discussed in last month's article. The new uptrend is underway! 

Emerging Markets also broke above their 50-day moving average, which is now finally turned around and headed up. It never collided with the 200-day moving average and confirms a newly bullish trend. A pattern of higher highs, and higher lows as developed on VWO - thus defining an uptrend. 

Real Estate (RWO) continued its breakout out above the 50-day moving average in the beginning of the month, but found stome resistance at the 200-day moving average. The short term moving average has started trending up. A move above the 200-day moving average would be auspicious.

Natural Resources firms remain in a bullish trend as HAP trades above both its 50 and 200-day upward sloping moving averages. Many analysts feel 2017 could be a great year for commodity companies. A pullback at the end of the month needs to release more power to make a new high. 

Initially, commodities rebounded from their heavy losses in December. Importantly, the 50-day moving average on USCI is now firmly trending lower, and acted as strong resistance during the middle of the month. As we stated last month, commodity prices could go much lower here.

World bonds (AGG) rebounded in January, and actually broke and maintained trading above the 50-day moving average. That moving average is starting to slow its pace to the downside, and maybe forming a bottom. Interest rate talk has stalled in the US, with 3 new FED members acting much more dovish than their predecessors. 

Inflation indexed bonds (TIP) are pressing hard at the bottom side of their 200-day moving average, and holding above their 50-day moving average, which has rounded up! If this this ETF can move above this resistance, bigger gains are in store. 

In a big reversal from last month, International bonds (BNDX) suffered more than US bonds. As stocks weakened BNDX rallied above its downwardly sloping 50-day moving average, it was met with selling. International bonds are definitely in a strong downtrend. 

The USD has now de-correlated with US equities, suffering the whole month of January. This could portend problems in the equity markets. The 50-day moving average is showing a reverse of the bullish uptrend is possible underway. 

In summary, non-US stocks outperformed a rather flat US market in January. Natural Resource companies outperformed and Real Estate looks strong, while commodities, non-US bonds and the US dollar look weak. Non-US stocks have turned higher here, and look to be starting a new uptrend.

February 1st - positive after a sell off

Large caps - or I could say AAPL and some related technology companies - were positive today. However, all closed far below their highs of the day. The RUT actually closed lower today.

Overnight action has not held and the NDX is already down 0.3%. The SKEW is still high although back down to 133. VIX fell today, while VXST rose. This puts the VXST/VIX ratio positive, which is a negative for the market. This has not happened at these low levels of VIX for a long time.

I did not put on any new trades today. I may have missed some easy money, but the tide is not yet even going out.

Rebound?

The market rebounded today. For the RUT, this was a substantial move off support. The NDX lagged but AAPL beat results after hours and that should put the market at a higher open tomorrow. Looking at the RUT chart, you see that a move higher was expected by the position of the Momentum and Near-term lines of the MFC (Market Forecast Chart, in the middle of the graph below). However, the Market Sentiment has completely rolled over from a very high level and is pointing lower now.

Tomorrow is the first of the month, so a positive day is expected. This is not the end of the sell off however, in fact it has not even begun!

Seasonally, February is the weakest month of the 6 month bullish period starting from November. In post election years, it is one of the weakest months of the YEAR!  Nasdaq stocks are usually the weakest in February. 

The SKEW is again on the rise - upto 138 now! I am going to look into what happens when the SKEW clusters for an extended period over 135. 

Put/Call ratios have been stuck in overbought conditions for an extended period. The VIX is also beaten down. Yet, both yesterday and today, the VXST traded above VIX intraday. This is a strong sell signal. 

Figuring tomorrow would be bullish, I traded out of both the NDX and SPX call spreads. 

I bought back the NDX 5140/5150 Feb2s for $3.50. I also traded out of the SPX 2185/2195 calls expiring Friday for a small profit of 30 cents overall. 

I am going to look to put both of these spreads on again tomorrow for larger credits as the market should have a positive day tomorrow. That may be a short reprise, however. 

Sell off

The overnight pressure to the downside carried through to the morning session with a strong sell off across all indexes within the first hour. The indexes took the rest of the day to fight some of that off. This is not going to be the end of this sell off, however, as the SKEW rose today to 134+. Meanwhile, VXST traded higher than VIX several times today, marking more volatility is coming. The VIX is still extremely low.

There is good reason to believe that the recent high on the NDX will hold for sometime. The RSI is falling back out of the upper extremes. Today's candle was an ominous retracement to the breakout area, which is holding as very short term support right now. The Double Smoothed Stochastics are also very high on the chart and could start rolling over soon.

I traded out of some of the NDX spreads today. I bought the NDX Feb2 5160/5170 back for $2.20 and the 5160/5175 spread for $2.85. Having brought in a credit of $1.05 originally, these trades are manageable losses.

I still have the NDX 5140/5150 trade in place, along with the SPX 2185/2195 calls. If needed, I will roll these out further.

In the meantime, I may buy some VIX call spreads on the open, just to take advantage of the high SKEW.

Opens higher, closes flat

The overnight move was again impressive. The NDX especially was strong and opened with a gap. That did not hold and the indexes closed on their lows. After hours, GOOG missed its earnings estimates and sold off about 3%. This could put pressure on the NDX tomorrow.

The SKEW went up a bit to 129 today. It's still a high number, but not extreme like a few days ago.

VIX fell today and ended in the 10 handle. VXST remains only slightly below it at 10.05.

I had to move a lot of trades around and add more put spreads. Yesterday I added a small bull put spread at 5070/5050 for only 70 cents. Today, I added another at 5100/5090 for 40 cents. These are just trying to cover some of the adjustments to the calls. They all expire tomorrow in the AM.

I moved a few NDX call spreads yesterday to next Friday expiration for a credit of 20 cents by widening the strikes from 5130/5140 to 5160/5175. Today, I moved the rest of the 5130/5140 that were to expire tomorrow out to next Friday by moving them up to 5140/5150 for a debit of $1.80.

I did not move the SPX calls at 2285/2295 as they expire next Friday. There is a good chance we will see some pullback before then.

This bullishness is really spectacular given the low level of VIX and the length of the rally already. The RUT has not made new highs yet, however, and was leading to the downside today. This may foreshadow weakness in the market soon, but until signs of a reversal arrive, the market is bullish.

Super bull

The market made a big move overnight and after a short bit of selling in the morning, went on to make new highs. The DOW made it over 20,000 finally.

The NDX broke through the call spreads, so I began moving them out to next week. I also added put spreads way down at 2070. For the next few weeks I will be battling with a strong uptrend. At any time, we could get a sharp pullback to retest the breakout, especially if big tech names' earnings come in light.

Bullish day, but SKEW is way too high still...

Today was generally a continuation of yesterday's move. The markets opened higher and after a brief test of yesterday's close, they moved higher in spurts throughout the day.

The NDX broke above 5100 and made a new high. This pushed the RSI line above 70, a place it will usually not stay for long.



Meanwhile, the SKEW rose slightly today. It's still marking really high numbers, showing more volatility is likely in the near future.

Volatility fell, but on such widespread bullishness, short term measures still remained above recent lows. At the same time, longer term measures broke to new lows.



I tried to move the NDX call spreads up about 30 points and out until next week for a credit, but I could not get filled. Tomorrow could have some follow thru (at least intraday) in this rally, but the next few days could be flat. So far our spreads are not being tested.