Monday, July 14, 2014

VIX:VXV Ratio Pointing to a Near Term Market High?

Click on Chart to Enlarge

This chart of the VIX:VXV ratio goes back 3 years, and represent 1 month implied volatility over 3 month implied volatility.  If you have no back ground in this ratio, then search this blog for the VIX/VXV label to get past interpretive info.

What I want to point out here is that when the ratio spikes to a LOW level - meaning below the lower bollinger band - that event has consistently NOT been right a market high.  I discussed this briefly several weeks ago at the end of May.  Looking back over the lats 3 years of chart history, we see that the low in VIX:VXV occurred 6, 4, 8, and 6 weeks before the most significant market corrections, though in March 2012 it was only about 2 weeks until the high, but 6 weeks until a small double top before the correction really occurred.

So averaging those out we see that it has been about 6 weeks after the low VIX:VXV that prices made a high and corrected for several weeks.  Interestingly, we are currently right at 6 weeks from the most recent low in the VIX:VXV.  So based upon this very simple analysis, it gives us a heads up from volatility analysis of real money data in the options market, that we may be in the time frame for the market to peak and correct here.  Additionally, as of today we have a very sharp bearish divergence on the daily time frame in QQQ and other than the Dow managing to poke up to a slight new high, the other indexes like Russell 2000, S&P 500, Nasdaq Composite, Wilshire 5000 are not making new highs, so we have some non-confirmations and technical bearish divergences present.

Also recently we saw a extremely low equity put/call ratio average.  Similar comments apply there as to the VIX/VXV.  The low point in the equity put/call ratio has been a couple weeks to a couple months prior to the price peaks before the major corrections.  Currently we have a June 19th low in the 10 day average of the equity put/call and are nearly 4 weeks removed and price pushing to higher highs.

Taken together, my opinion is that the market is set-up virtually identically to the sentiment backdrop that has occurred right at the highs before recent market corrections.  So, only time and market action will tell whether the recently consistent tendencies will follow here, my vote is that there is unlikely to be any appreciable price rise from this level over the next several weeks, and we could very well experience another broad based correction in stocks.

Tuesday, July 8, 2014

More Selling Likely Ahead?

As of this afternoon 2:00 ET, it appear likely that stocks will have at least a modest continuation to lower lows over the next few days.

While the VIX has popped up here, it is not at a statistical level that typically coincides with short term bottoms yet.

When I have time to update I would like to go over some other charts which I believe suggest caution here for those who are still long.  Put/call ratios are at an interesting point here, where they are possibly indicating relative fear in the market compared to the recent trend.  However, given we were only 1 day off an all time high yesterday, I think a better interpretation is that this is a "shot across the bow" after a significant divergence period, which suggests we could see fear rise further, and stocks to fall further.  I suggest waiting for at least short term sentiment divergences to consider taking any new longs from this point.  Extremes can get more extreme.  So we want to see extremes first, then divergence, then price reversal confirming a possible change in trend.  That will be the low risk point to possibly enter for a continuation of a bull market trend.

Monday, July 7, 2014

MS Sept 33 Puts

I bought Sept 33 put options for 1.57 this morning on Morgan Stanley, symbol MS.

The set-up here is a dual time frame overbought at a slightly lower high compared to the last weekly over bought stochastics peak.  Daily time frame is showing strong bearish divergence and a shooting star reversal candlestick.

Also the VIX is showing a cluster of low readings with a couple closes below the lower bollinger band.  Based on my analysis of real money market sentiment and price, I view this current phase of the market to be a continuing bearish divergence that is probably very mature and likely to turn into a significant price decline for the time frame of this trade, even if for only 1-2 weeks.

Wednesday, June 25, 2014

BIDU Put Trade

It has been a few years since I have posted trades on this blog, but I am going to do some here in coming months.  Some may be ETF or equities, but today's is an option on BIDU.

I am placing a limit order to buy an August 170 put on BIDU @ 5.00.

Earnings is July 21st, so this strike includes the upcoming earnings date which is in theory a gamble, but also provides possible volatility for a large winner.  The basic set-up here is a multi time frame over bought at a slightly lower high, and with daily time frame divergence.

Tuesday, June 24, 2014

Top Warning Here For Stocks

I am just posting a verbal top warning here based upon my personal market timing algorithms.  I would suggest being out of the market unless today's high is exceeded on a closing basis.

Alternately, one could sell out partially of the market on long positions or for those experienced in shorting, could place a small to normal size risk trade on the short side based upon an appropriate technical signal for your methodology.

Friday, June 20, 2014

Stochastics Dual Time Frame Sell Set Up

Stock Market Analysis 6-18-14
Stochastics Dual Time Frame Sell Set Up

This stock market video covers multiple time frame analysis of stocks with specific focus on IWM.  There is a multiple time frame stochastics sell set up and a possible head and shoulders top formation happening in IWM concurrent with some extreme market sentiment measures.

I also review gold, oil, bonds and a few sentiment measures regarding US stocks.

Thursday, June 19, 2014

Equity Put/Call Ratio At Multi Year Lows

Click on Chart to Enlarge

The equity put/call ratio put in a very low reading yesterday at 0.38.  And the chart above shows the 10 day average at a multi year low and outside its standard deviation band.  These are further signs building a case that stocks are nearing an optimistic extreme.

The other side of the equation is that stocks are at all time highs and so optimism is warranted here.  As I always point out, it is not the extreme that typically coincides with a high or low.  There is often a period of slowing of market action and development of lesser sentiment extremes which diverge with continued price highs that are the better indication that the time window is narrowing in on a trend change.

From extensive experience monitoring these ratios, my opinion is that extremes like this are good places to reduce positions.  In these cases, sell out partially of the market.  It is true that sometimes trends only pause and your stocks will continue to move big.  So that is why I always hammer home the idea that a trailing stop or stop adjusting mechanism be used to allow for major winners to continue.  So the idea is that when the market is at a sentiment extreme, often most of the move is done, and whatever gains come from here, will often be given back and then some at the next correction.  And so even if you partially sell out, you could often buy back the position at a lower price when opposite extreme sentiment conditions show up.