Thursday, November 1, 2018

Technical Analysis—Ratio of the SPX to the 10-year Treasury Volatility

The ratio of the SPX to the 10-year Treasury volatility (SPX:10y T volatility) demonstrates a pattern where down-spikes correspond to local minima in the S&P 500 (vertical blue dotted-lines).

The chart below (click to enlarge) shows that the down-spike in the ratio has reached the up-sloping trend-line. This increases the chances of a bounce in the SPX.

$SPX (11/01/2018)





References

  1. SPX:10y T Vol

Saturday, October 20, 2018

Technical Analysis—200-day Moving Average

The ability of a stock to be above its 200-day moving average can be considered a fairly reliable indicator for positive future returns.

A breadth indicator that measures the percentage of stocks above a specific moving average. Many indicators have been created on the concept of market breadth. For example, a good market breadth indicator is $SPXA200R which measures:
The percentage of S&P 500 stocks above their 200-day moving averages 

Interpretation of $SPXA200R


$SPXA200R is a medium to long-term indicator.  In general, you can use it to:
  • Buy - when it moves above 30% from below and 
  • Sell - when it moves below 70% from above

More on 200-DMA


In addition to look at $SPXA200R, 200-day moving average (DMA) can be also used in different ways.  For example, you can look at:[1]
  • The direction of 200-DMA
    • If it's rising, it's a signal of a long-term uptrend, and vice versa for a downward-sloping 200-DMA
    • In [2], the author has proposed below trading strategy which could potentially produce an annual return of 8.55% :
      • The system only buys the SPDR S&P 500 when it’s in an uptrend, and it remains in cash when the ETF is in a downtrend. The system makes any buy or sell decisions every 4 weeks, so trading expenses should be negligible.
        • The market is considered to be in:
          • An uptrend if the slope in the 200-day moving average in the SPDR S&P 500 is positive in the past 10 days
          • An downtrend if the slope in the 200-day moving average in the SPDR S&P 500 is negative in the past 10 days
  • The distance of a stock is trading above or below its 200-day 
    • A good way to gauge how extended it is from its "normal" trading range
    • Especially vulnerable are stocks that are trading far above their 200-day moving average.  For example, on 05/31/2017,  Apple (NASDAQ:AAPL) is 22.80% above its 200-day, Amazon.com (NASDAQ:AMZN) is at 20.39%, and Alphabet (GOOGL) is at 19.05%.

References

  1.  S&P 500 Stocks Farthest Above And Below 200-DMAs
  2. Market Correction: Buying Opportunity Or Time To Sell?