Sunday, November 22, 2015

Why The Bulls Are In Trouble

In my last post in mid-October I mentioned the Bulls are likely to take charge, soon after the Market retested all-time highs. However, the current Market environment now is much different. I am noticing an ominous chart (shown above) for the Bulls. 

The chart above is the Ratio Adjusted Summation Index ($NYSI).  The $NYSI, which is a great tool to measure the strength of a Bull Market, is calculated by adding the daily values of the McClellan Oscillator. Readings above 500 convey the message that we are in a Bull Market and will continue to make higher highs. Make note of the black highlighted area where the $NYSI barely goes above 500, before continually making lower lows even though the market maintained and made a slightly higher high (divergence). Eventually it caught up to the market, and a +20% correction occurred.

Thursday, October 15, 2015

Are The Bulls Set For A Comeback?

Markets have had a turbulent few months. However, there may be some hope for the bulls via the McClellan Oscillator. When the McClellan Oscillator is overbought with a complex structure (being above 0 for several days), it's foreshadowing future strength in the Market. The McClellan Oscillator has built one of the strongest complex structures above 0 that I have seen in over a year. This indicator is hinting that the Market will likely continue higher. The time frame for such a call ranges from now to a month and a half (even if a pullback occurs). 

However, traders and investors should be weary as the New York Summation Index (NYSI), a derivative of the $NYMO, has yet to confirm a bullish bias. The NYSI is currently at 132, but I would like it to reach levels above 500+ to confirm what the $NYMO is telling us. As the lack of leadership in the Market by individual stocks is somewhat concerning, its hard to trust just one indicator.

Sunday, August 23, 2015

Is the Market Ripe For a Bounce?

technical indicator SP500 bounce

On my last market timing post, I called for a correction two days prior to the July top. Since then the Nasdaq ($QQQ), has had a 10% correction. The long term outlook on the Market is likely to be on the bearish side. However, I do believe that the Market is ripe for a bounce due to several oversold technical indicators, of which I will describe:

1)McClellan oscillator is currently at -228, were reading below -150 are interpreted as "oversold".
2)Both S&P 500 and the Nasdaq ($SPY, $QQQ), have spent two consecutive days in a row below the lower Bollinger band, which is another "oversold" reading.

Wednesday, August 19, 2015

A Quant's Take On The Market

By Dylan Johnson

The chart above is a monthly chart of the S&P-500. On the chart, is our proprietary market timing signals; mean-reversion bands & and inverse fisher transformation formula/indicator. The mean reversion bands are used in this fashion: when the data/price bar (candle stick) is above the blue line (top band) its over-bought and is over-sold when below the red line (bottom band)

As shown in the chart above the market has been over-bought for some time now, however bands are not enough to make a precise decision. In conjunction with the bands we use a digital signal processing formula - the inverse fisher transformation (IFT) as the trigger. The IFT is best used on a longer term chart or 5-10 minute chart, since its designed to compress values near extremes and filters out many extraneous & irrelevant wiggles so noise is removed from the calculation (John Ehlers "Cycle Analytics For Traders"). This acts as a "trigger" once you have realized the market is in the "over-bought zone" and will mean-revert, IFT just tells you when to take the trade. When IFT (white line) falls below its signal line (blue line) you would go short or exit long. As you can see I circled with a blue eclipse the period corresponding to the price bar when it shorted. The signal is very accurate, as every month after the signal occurred the market fell substantially for a time. We just got a signal this month from IFT and Mean-Reversion Band system.