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Wednesday, February 5, 2014

My A/D Indicator and Internals Update

Over past few days I stopped out of almost all common stock holdings, except gold, silver, miners, pot (in LB account), utilities and couple of other things. I don't have any shorts on. System 9 is over 50% cash, account continuously pushing new equity highs. System11 had  a streak of winning trades, even thou I trade it sporadically and missed most of good opportunities. System12 stalled (as it should in correction) with only 4 positions so far.
I am crazy busy at work, as my departure nears. Already started to train my replacement - she is very bright - hope she doesn't quit before I leave...lol

I will be cashing out most of marijuana stocks from Z account, in order to pay for Boichik trip to Italy next year. Only a few months ago it seemed absolutely impossible. This is a great news, and a major achievement for me - to make and withdraw a significant amount of money from the market!
I feel very proud. Remember Ibiza - The Impossible Dream... Will happen someday too...


I started to get ideas about how to use My A/D Indicator (MADI) about a year ago in this Internals Study (link). Since then I added and changed  few things. First of all, I now mostly use NYSE Advace/Decline issues (NYAD), because it seems to produce cleaner signals, but still look to Nasdaq (NAAD) for confirmation. Sometimes they diverge - I don't know what it means.

This is what now are MADI Rules for Bull Market ( I suspect that bear market will produce different levels, but don't have data to test):

- When 20ema is under 0 - market is consolidating or falling. Bottom will be made before 20ema recovers above 0.
- When NYAD 20ema goes below -200, and doesn't recover quickly, - it will go lower and produce at-least a tradable bottom at much lower levels. Most common next level is -400 to -600. Note that August 2011 bottom was -900 on 20ema! This spike lower will get a retest most of the time.
- When NYAD 50ema goes to or below -200, then its a Just Buy The Fucking Dip (JBTFD). This seems to be the most reliable use of MADI.  Buyable dip happens couple of times every year, usually followed by second dip of indicator 2 weeks to 2 months after extreme reading of -200 (or less) on 50ema of Advance/Decline issues. Failure of this bottom may lead to mini-crash (this is what happened in 2011)
- In order for bottom to be complete 20ema has to rally fast and recover above 0.
- In a bull market, MADI will spend more time above 0, allowing to keep positions longer and add on dips.
- "Sell The Rip" is generally at NYAD 20ema +400, but can go to +600/+700. As it is, its not a good signal to short the market - several of these high readings where just run over in early 2013. I'd say - when indicator is that high, probably too late to buy.

MADI 2/2014
3 year study of MADI is here (link)
T-Theory Volume Oscillator checked at -80, the reading usually associated with tradable bottom. It may be already double bottomed. Unfortunately it may have destroyed T12/2013 (from this post link). I will wait for a rally, to see if market really bottomed, and revisit T-Theory then.

Confidence Indicator dumped, treasuries are a place to be since the beginning of the year, investment grade corporate bonds are better than high yield junk (no shit).
Golden Indicator warning that shocks are weak, although S&P and developed markets are stronger than Emerging.

Mark Faber warning again. Treasuries are the place to be for next 3-6 months. I already have VUSTX in System 1 account, not looking to add for now.
 Nadeem_Walayat see ..."No sign whatsoever that this  bull market is anywhere near being over!"
 "THIS stocks stealth bull market is one of the GREATEST bull markets in HISTORY!"
"The current stock market correction looks set to attempt to revisit 15,000. How close it gets to 15,000 I can't tell, perhaps half way, just that the correction is not done to the downside."
His favorite sector is Biotech, and has been forawhile.
Classic ZeroHedge. The world is ending...again...any day now...

Weekly Nasdaq A/D Cumulative
My A/D Indicator (NYSE) with BPSPX and SPXA50R
McClellan Suite: NYMO; NYSI; NAMO
T-Theory Volume Oscillator
Risk-on /Risk-off ratios, aka Confidence indicator (FAGIX:VUSTX;  HYG:LQD;  $SPX:$USB)
Golden Indicator with World Ratios

------------------------------ In The News ----------------------------
Solar activity is productive with M-class flares every day. "Solar activity is expected to be at moderate levels with a chance for high levels through 09 February", sais NOAA.

Now we have a new Fed Chairman(woman). Bermonkey is no more. Good riddance.

Emerging markets are submerging again. Turkey, Argentine, Brasil, South Africa, bunch in Asia, etc are in some kind of currency crisis. China got banking problems. I am looking to buy the blood.
Here is very smart India central bank Governor Raghuram Rajan talks  about interest rates, fund outflows, the rupee and global monetary policy coordination on Jan 30.


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