Now Reading
February Market Momo Update
81

February Market Momo Update

by The MoleFebruary 28, 2017

One of the reasons why I entertained the mere notion of an E-Mini long campaign over three weeks ago was that, while market momentum certainly appeared to be maturing, there clearly was plenty of remaining potential for a continuation of the advance. Or in other words, don’t ever trade against a rally just because in your infinite wisdom you have come to believe that it has gone far enough. Lacking any clues to the contrary always stick with the ongoing trend.

Now I’m pretty sure that this is a trading nugget you have seen in several of the trading books you have accumulated over the years. But unlike many hobby analysts or ivory tower academics this market megalomaniac is more than prepared to deliver actual evidence in the form of momo charts. So strap yourself in as we’ve got a lot of material to cover and it’s going to get rowdy.

2017-02-28_CPCE

Alright, I’m dropping you right into the deep end of the pool here. The CPCE was one among many warning signs a month ago which strongly cautioned against shorting this market. The zigzag channel I have drawn shows us a slightly smoothed put/call ratio that tells us a lot about market sentiment. Earlier this month we actually had DROPPED toward the current lower boundary, which usually only accompanies a corrective phase.

My take then was to watch out above because nothing is more dangerous to the bears than a lack of shorting (or in this case put buying) interest during a sideways market (referring to the January period). Going forward you may once again be surprised to learn that I am still not ready to call it quits on this rally. One among several reasons is that the put/call ratio continues to reflect very little appetite.

Caveat

I however consider it my duty to point out right from the get-go that markets like these can become extremely dangerous. Meaning if a relentless advance such as this continues to be ignored by early sellers then we may actually run into a situation in which we are simply running out of buyers. When that happens a very violent downside correction is often the result.

What this means for you right now is that you should continue riding this rally as far as you possibly can but I would very much caution everyone against hopping on this ride this late in the cycle.

2017-02-28_NYMO

Alright, but we are just getting warmed up. The NYSE McClellan Oscillator is a breadth measure that is based on the number of advancing vs. the number of declining stocks. I use it a bit differently than most in that I do not care about the actual reading but the direction in combination with an SPX based ratio threshold at 0.0050. I have found that a breach below the mark in most cases is followed by an intermediate correction.

But what really gets my attention is when the opposite happens and in particular if it happens twice. Which is what we got in the sideways January phase before this current leg higher. A breach of the previous highs in the SPX after a dip below this ratio strongly suggested that the bears were heading for the reaming of their already miserable existence.

2017-02-28_SPX_breadth

Another breadth measure is the simple SPXA50:SPXA200 ratio which does not use any moving averages or complicated formulas. Once again I am looking for direction (intent) and a threshold (the inflection point). Here the 1.0 mark usually precedes a corrective phase and that’s what we saw in January. My take then was to not call a top but to start looking for reversal signs. Which never came. Once again a breach of the previous highs on the SPX told us that we may be looking at a runaway train here.

2017-02-28_NYA_breadth

Another version of the same is the NYA50:NYA200 – very same idea although we are talking about 2,800 symbols here which gives us a very broad and often lagging perspective. A breach through the 1.0 mark for me usually is an early signal that the easy phase of the rally is over and that a correction may be around the corner. But of course not always and I never ever base my trading solely on breadth measures.

2017-02-28_VIX_expansion

Okay, one more goodie before the pay wall: Here’s the VIX in all its vanilla glory on top of its rate of change indicator. I use a 12 interval in combination with thresholds to parse for what I call the VIX Volatility Expansion Rule (please – I need better name for that!), which goes like this:

  1. The ROC(12) must have previously dropped to -40.
  2. The ROC(12) must touch or breach the 0 mark

Once the two conditions have occurred we usually see a spike in the VIX to > 20. Now the timing may be slightly delayed or it may happen quicker than we thought. But the bulls are clearly on notice now.

Plenty more goodies below the fold. Please join me in the lair:

evil_separator

It's not too late - learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don't waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Mark Shinnick

    Well..in my lens this is a pretty good volatility threshold to walk it down to some very local support and position there with a very tight stop. It could be anywhere close by but in the overall its time to stay very puckered about it.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • Mark Shinnick

    Ok, so got into some volatility there.

  • http://www.captainboom.com/ captainboom

    Here’s a better name suggestion Mole. Use VIX Expansion Number, or VIXEN. I’m sure Gerb can come up with a suitable image that will help us all remember :-)

  • Tomcat

    Love me some $CL here. Nice chart GG

  • ridingwaves

    seems some folks are jumping back into miners ahead of the Donalds big moment tonite,…

  • Tomcat

    Time to get off the $UGAZ train…

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    I was going to start with Vee for Vag….oh never mind.

    How about Vertical Ejection Rack?

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    no correlation. Confirmation bias. fake news.
    😉

    https://i2.wp.com/hennessysview.com/wp-content/uploads/2016/05/Trump-McDonalds-in-Plane-Instagram-1-640×640.jpg

    You want fries with that?

  • Tomcat

    need image to decide…

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    I could probably find a nice animated gif.
    But I don’t want to be banned
    =P

  • Yoda

    Teaser

  • Mark Shinnick

    Wouldn’t it be a nice market FU if everything fell to pieces before this speech? As I see it, we are on a precipice right now. I really hope he is so realistic and sanguine about the challenges the USA is facing…giving critics no room to blame him for things he is not responsible for creating.

  • Tomcat

    If you get banned, I leave this blog…in protest

  • ridingwaves

    xbi and ibb trying to break out of long term sideways channels, if they fail it will ugly, never heard of a quadruple top…but IBB would have one if it hits 300 and backs off hard…

    edit – XBI looks like its thru and could run to 73.50 pretty fast if it holds

  • Mark Shinnick

    Very Empty Retirement Potential

  • Mark Shinnick

    Yeah…these things are pretty important, thanks.

  • ridingwaves

    it is fake news since he has no say over the state of union, which is recap of last year….what he doesn’t say might be more telling for different sectors

    ohh, those nibbling metals folks took a nap by the looks of it

  • StockTalker

    Bear signal

  • Mark Shinnick

    Ok, so you got that. What needs to happen before you lose confidence in it?

  • StockTalker

    New high

  • CandleStickEmUpper

    Very insightful post, thanks Mole

  • CandleStickEmUpper

    Scalped /NG for a .60 cent ride this morning. Not holding on to it, as its been complete fuckery with that one lately. Warm weather is not helping it, although I still think it will eventually fill the gap at 3.5’s. Just a matter of how much pain your account can handle before that time comes.

  • StockTalker

    We have movement people

  • Yoda

    my, oh my,long red 5 min candles

  • CandleStickEmUpper

    Zero showing some arrows

  • StockTalker

    Looks like bad news coming.

  • StockTalker

    My favorite color

  • Mark Shinnick

    We’ve been very bad…we know it….we are all waiting for daddy to come home tonight. ;/

    Tell me that’s not a mixture for volatility :)

  • ridingwaves

    if XLF fails to hold at 24.30, more red coming

  • Yoda

    I found this website for weather related info relevant to NG
    https://truewx.com/long-range-outlook/

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Today is Fat Tuesday? Damn! time is flying.
    Month End Boyz.

  • BobbyLow

    I’m not so sure if any of this really matters. If it did, I would question why after /NG hit a 52 week high of 3.90 on December 28th, price took a Big Dump on January 3rd and has been in a downtrend ever since. On January 3rd there was at least 2 to 3 solid winter months left.

    Whenever I try to apply conventional logic to this stuff it makes my head hurt so I stopped doing it. :)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    agreed, but support is waiting in the upper 23’s.

  • ridingwaves
  • Mark Shinnick

    Ain’t that the friggin truth.

  • Tomcat

    BL, I respectfully disagree. Front contract in NG is all about the weather for the next 1-4 weeks. I took a huge loss in the dates you mention above because over the long weekend the weather model for January changed from an extremely cold (polar vortex) to mild and than to February warmer than usual.

  • Mark Shinnick

    Some midday mojo coming out of vol and this has historically led to equity firming; I adjust accordingly…. because I can…. but heads up with vol in any case.

  • CandleStickEmUpper

    Is that Trump?

  • BobbyLow

    No problem TC. Funny you mention taking a large loss holding over that weekend. When I first back tested NG I had planned on holding positions until I got stopped. But upon further review I’ve since decided to close out any NG position by the COB on Fridays for the exact reason you just mentioned. The weekend gaps can be wonderful if on the right side of them but they are horrible when on the wrong side so it’s just not worth the weekend risk for me.

    I honestly can’t say for sure what pushes price one way or the other than more or less buyers than sellers. However, if we get an hourly close of apx 2.80 or above, I will probably close my short and flip to a long. So by that measure we’re pretty close and only about .04 away at this moment. I think the main difference in lenses is anticipation based on fundamental analysis or reactionary based on price. Both types of lenses can be effective.

  • Mark Shinnick

    All it represents is high polarization that has a high capacity for discharge….somewhere….somehow…somewhen.

  • ridingwaves

    conventional logic to the point as BL states above…

    I wouldn’t have a problem with being number 5…

  • http://evilspeculator.com Sir Mole III

    I was trying to post the Zero snapshot but it keeps failing. Please check out my twitter feed.

  • http://evilspeculator.com Sir Mole III

    LMAO

  • BobbyLow

    Man what a ride on Dust. After being up over +3 R yesterday, it had me puckering earlier this AM. I put in a stop at +1.5 R. Price came within 28 cents of my stop and has since churned around all the way to being green. :)

  • http://evilspeculator.com Sir Mole III
  • http://evilspeculator.com Sir Mole III

    At least one person liked it! :-}

  • BobbyLow

    Thanks for rubbing it in. :) Seriously though, I do have to thank you because after scrolling over this picture over and over again I finally realized that DT might say something to Jack the gold market up which in turn might kill my DUST profits. Therefore, I will take my profits in this position before the COB.

  • CandleStickEmUpper

    According to those scientific weather models, Id want to short /NG on pops. Looks like a warm March until end of the month.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    there goes our last female
    btw, where is TraderMom?

    http://i.imgur.com/ZUQImcl.jpg

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    yeah, I had problems posting a .png and even a .jpg.
    Disqus sucks! {fist raise}

  • BobbyLow

    Out on DUST +2.9 R. It’ll probably close strong but after giving a lot up and getting most of it back, it was time.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    VIX buy signal. Quiz next week.
    psssst. pass it along.
    😉

    http://evilspeculator.com/no-vix-buy-signal-yet/

  • ridingwaves

    outstanding red leader

  • ridingwaves

    CL erection

  • Mark Shinnick

    Long miners

  • ridingwaves

    I would say everyone whom comes here more than likes your content….
    but I’m humble

  • Mark Shinnick

    Stopped out.

  • Mark Shinnick

    Amazon net problem?

  • BobbyLow

    Thank you Sir.

    I needed this one. It’s been a bit of a struggle for me over the past few weeks with Crude being in such a tight range for so long. But as you implied, perhaps CL took an extra dose of Viagra this afternoon. I’m still net long but in reality all I would like it to do is to do something – anything – either up or down.

  • StockTalker

    This is a 4, next move will be down.

  • Tomcat

    Taking half off the table. YUGE ramp up.

  • http://evilspeculator.com Sir Mole III
  • Mark Shinnick

    This signal has me a bit spooked Mole.

  • Yoda

    that would be step 1

  • Mark Shinnick

    http://www.cnbc.com/2017/02/28/company-insiders-are-dumping-stock-at-levels-rarely-seen-report-indicates.html

    In the last week, insiders’ sale transactions on the NYSE outnumbered their purchase transactions by more than 11 to 1, according to Vickers, a publication of Argus Research. The 11.47 reading is 3.5 standard deviations above the mean, according to Coleman.

  • http://evilspeculator.com Sir Mole III

    Well, it’s the first real sell off that lasts a session. Let’s see how she closes now..

  • Darkthirty

    Heretic! Blasphemer!

  • CandleStickEmUpper

    Got nowhere fast

  • Mark Shinnick

    Well, this big move still measures a bit higher.

  • http://ibergamot.blogspot.com/ i Bergamot

    This is rare and (i think) important, especially for my last chunk of SSO.
    I have this thing – Composite Score Indicator- to measure trends n’stuff.
    It hit maximum reading (+11) on a monthly time frame for 2 months in a row.
    Implication is that trend is exhausted and Ass-n-Pee should be sold. In case it continues to trump away, I will trail a close stop because even when trend persists it has a tendency to come back later to ‘revisit’ a range of the signal bar (225ish SPY).
    Last time this double-signal appeared on November-December 2013, S&P immediately sold off some 120 points (about 6%). Similar move now will take us down to 2200ish.

    Be careful out there – “Sell all 11’s” on a monthly chart doesn’t come very often. There where only 2 other occurrences in past 10 years – May 2007 and May 2014.
    Easy time is over, now the circle-jerk begins… :-(

  • Yoda
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • Yoda

    How about tomorrow?

  • http://evilspeculator.com Sir Mole III

    Soooo…. would it be fair to say that the sample size is rather small?

  • http://ibergamot.blogspot.com/ i Bergamot

    Correct.
    I developed CSI on a weekly chart – there it works the best.
    Later I adopted it to daily, which is a bit noisier but still good. Intraday it doesn’t work, but I keep tracking it on 120 minutes futures chart because of some interesting patterns. Monthly is really not usable very much for me, but informative especially at extremes.
    All signals work the same on every time frame, and “Sell all 11’s” is a real bitch – trend looks the best at the top…he-he

  • Mark Shinnick

    Well…there remains some more upside to meet an objective.

  • Yoda

    wishing upon a shooting ? tomorrow

  • http://www.ProfitFromPatterns.com/ Ivan K

    Why not do some simple stats regarding the efficiency of a simple Shooting Star formation … Scott has already placed his call stating that ALL candlestick patterns are ‘useless’ (according to the book of Scott) … but first be sure to define what a SS is for the 10 year old !

  • http://evilspeculator.com Sir Mole III
  • http://evilspeculator.com Sir Mole III

    He never said that. Various of our ongoing systems use candle patterns or a combination thereof. Slamming Scott or quoting him incorrectly doesn’t score you any points here.