4/18/20 WEEKEND Update - QUANTITATIVE SUMMARY

Intermediate term Directional Decisions

Currently Tracked ETFs/Stocks and their Macro MSLs:


BEARISH = below the Market Structure Level (macro bearish structure):

SPY

IWM

FB

AAPL

GOOG

HYG

JNK

BKLN

XLF

XLU

XHB

XME

SLV


NEUTRAL = no definitive Market Structure Level (macro structure net neutral):

QQQ (close enough at week's close to be sitting here)

SOXX (close enough at week's close to be sitting here)

AMZN

NFLX

XLV

XBI

GDX


BULLISH = above the Market Structure Level MSL (macro bullish structure):

UUP

TLT

GLD

VIX (but watching 30-35 level for changes)


INTERNALS Summary: Advancing continuing but on thinner and thinner volume. Overall volatility is dropping to a more neutralized state which is a plus and indicative or more potential advancing in the near term. That is the greatest takeaway. This coincides with the assumption that the market is going to return to normal as the COVID-19 situation is repriced. Whether that is accurate or not is not something I will not address. That is how these readings are coming across. We are at some pretty substantive inflection points, so these readings become very important next week. What would be a better posture for bulls thesis here is if there was better TRIN (volume behind the advancing), but that has been weak last few days. Have to wait and see next week. Bulls want more 'umph' behind the buying...not just higher prices on thinner and thinner participation. That is how gaps below get filled quickly.



INDEX Takeaways:


  • SPY - MSL is still 9% above so quite a ways away and even if it gets there, breaking it doesn't mean a new bull market but implies a neutral stance in the short/medium term. Not ruling out a breakout and new bull trend - but that would take some time to fully develop and requires a few more stars aligning using our system.

  • QQQ - It is now in a neutral position already based on last week's action. That being said, bulls want to see the FAANGs have some help and a more participatory rise with healthy advancing stocks or this looks more and more like a thin stock and low volume price rise (read 'Gorpy' action) that can lead to 2-3 day price tectonic collapses that erase several weeks/month of price rise. Looking back over the last 3 years this keeps happening OVER and OVER and OVER again.

  • SOXX - Semiconductors are at a major inflection point and is one of the key sectors to monitor for the week. If they are to breach this area with a sustained move, then the MSL (which is neutral now) could become bullish on a back test. This is something that I am watching for next week.

  • DIA - Dow Jones is still a long ways price wise to getting back to the MSL and getting net neutral. Thin advancing volume makes this a 'gorpy' rise utilizing our systems, but there is 5-7% more upside that could happen before it reaches major resistance/inflection so I would not be surprised by that nor would it really change the market structure.

  • IWM - The current structure for IWM is similar to XLF and DIA. All look like they are at a similar inflection very short term. IF they can muster some buy side action and break up through recent resistance, 5-10% advances (think maybe some short term long trades in that case?) would not be surprising based on current price structured resistance levels (please refer to each individual chart). IWM would need to increase over 20% from here in order to take back the MSL and get neutral. That happens, we may have legs for a new bull phase of the market.

  • XLF - This is the ugliest of all the sectors listed here. There is a mound of supply levels overhead that will act as price resistance. 23.74, 25.14, and 26.44 are all going to act as resistance should XLF try to advance. 28.57 is the MSL that has to be taken back which is more than 30% above Friday's close...FWIW...that is not bullish.

  • VXX - Seems to be settling for now...is this hibernation going to be permanent or temporary? Structurally, we are finding support at the 2015 and 2018 market highs in volatility for those spikes. In the advancing bullish phases of the bull market, volatility oscillated between 10-20. We are 3.5x that right now AFTER these advances in the last 4 weeks. Bulls still have some work to do in order to normalize the markets, but they are making progress (hats off to them). The question is where this does settle (if it proceeds lower) or does it settle and begin to advance somewhere in this area here now. The 35 level is important as is the 30 level and the 26 level. There is still much uncertainty lingering, so the bid may remain higher than previous market advances are accustomed to.


FINAL THOUGHT:

High Yield and Commercial Real Estate - Something to monitor in my opinion is the HY ETFs and the Commercial Real Estate space (see XLRE for example but you can use anything in the space). I noticed something very odd in their large block volume and it is notated on all the charts in the lower frame going back in time. We know the Fed is openly buying these items (everyone does) but they are just now back to levels that were being 'distributed' from going back many years (that is what I noticed). HYG for example and BKLN are now at levels that did not see prices appreciate up and through for the last 10 years. If price could not appreciate in a normalized environment through these levels (look at the pink downtrend line for HYG) for a decade in the most low vol bullish period of all time, why would they break up and out of these levels now? It is a question that I am wondering openly.


Having said that, SHOULD these bust these decade long areas of resistance what would that mean? Major risk-on? With 30% unemployment? Looking only at the quantitative perspective, I have to look at these levels and openly question what happens if they are breached with a sustained price advance...not question the sanity of such. I am actively monitoring this next few weeks. This could have cascading risk on effects if these levels are breached as totally bizarre as that could be.


It is said that 'Bulls make money. Bears make money. Pigs get slaughtered.' I try every day to not to end up the pig. These are some pretty substantive liquidity policies Fed is throwing at the market that are more than 2015 Nov and 2018 Feb and 2019 Jan interventions COMBINED, so be open minded to the potential of policy error that resonates to the buy side, not just the sell side. Having said that, failure of policy to break multi-year resistance in high yield junk bonds and 3 year resistance in equities with the amount of liquidity being pushed into the market, could have very devastating effects to long term risk assets, banks, and high yield instruments and openly cause things like stagflation for example. I don't think this resolves in a few days, but should resolve directionally by May.


Best of luck this week - stay safe - cash is never trash. The $USD supply shortage globally is still in your favor here.


BLOG Notes:

I am going to switch up the daily schedule to help me with time and make sure I am doing justice with the actual shared information:


M-F Posts End of Day

INDEXES

INTERNALS

CURRENCY

QUANT SUMMARY


Weekend ALL + SPDR X's and FAANGs


Free

Also got asked if this is going to be migrating to some sort of paid service? The answer is no. That is not my intention. This was built to give me a forum to share my ideas with family/friends/market participants, help me promote our new app (when it is ready for distribution this summer and will allow users to do most of what I am writing here everyday themselves 24/7), and to help me keep my sanity as I am at home during this COVID-19 era.


I hope that this is getting more refined for everyone and is still somehow useful!

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