Volatility - Version 3.0

MARKETS ARE SET UP FOR ANOTHER FALL

Equity markets are setting up for their third bout of pronounced volatility in the past ten months as a confluence of factors form like storm clouds on the horizon. Global macroeconomic concerns, domestic rate expectations and bearish technical indicators have been going concerns for several months; and while they're certainly not mutually exclusive, all three factors are now flashing red at the same time!

CHINA

The issue of China's slowing growth and mounting debt are nothing new...

http://tancockstradingblog.blogspot.com/2016/05/is-china-next-japan-continuing-case.html

However, China related stocks and ETFs had enjoyed a small relief rally... until recently that is. Anything associated with the country is under fire again and not even huge investments from Apple can seem to save them.

THE DOLLAR

Similar to Chinese stocks, the dollar had recently reversed its own longer trend... it just so happened to be a bullish one. However, the dollar's technical pattern has transitioned from a bearish breakdown, to a low basing consolidation and today it moved into a bullish breakout:

A stronger dollar is a direct threat to natural resources; namely, oil, which has enjoyed a respite from a long and steep run of free falling prices. Renewed pressure amid energy related stocks would be yet another weight on a market that is struggling just to tread water.

http://tancockstradingblog.blogspot.com/2016/04/its-all-about-tubmans.html

LOWER HIGHS AND LOWER LOWS

Lastly, the market's long-term technical weakness is converging with short-term bearish signals. Following last August's drop, the market failed to eclipse its' previous high (lower high). It then proceeded to experience a second round of volatility in January where the lows breached the base put in by the August rout (lower low). Similarly to last summer's selloff, January's volatility was also followed by a relief rally. However, this past rally also failed to eclipse the previous high (lower high).

Now, the S&P is in its own breakdown pattern as prices begin to push below recent support levels.

Of course this does not mean that another systemic correction is guaranteed, but these signals certainly point to the increased likelihood of the market having another round of pressured selling in the near future.

Comments

Modeling Credit Risk...

Here's a link to a presentation I gave back in August on modeling credit risk. If anyone would like a copy of the slides, go ahead and drop me a line... https://www.gotostage.com/channel/39b3bd2dd467480a8200e7468c765143/recording/37684fe4e655449f9b473ec796241567/watch Timeline of the presentation: Presentation Begins: 0:58:00 Logistic Regression: 1:02:00 Recent Trends in Probabilities of Default: 1:10:20 Machine Learning: 1:15:00 Merton Structural Model: 1:19:30 Stochastic Asset Simulation Model: 1:27:30 T-Year Merton Model:

Modeling Black-Litterman; Part 1 - Reverse Optimization

"The 'radical' of one century is the 'conservative' of the next." -Mark Twain In this series, I'm going to explore some of the advances in portfolio management, construction, and modeling since the advent of Harry Markowitz's Nobel Prize winning Modern Portfolio Theory (MPT) in 1952. MPT's mean-variance optimization approach shaped theoretical asset allocation models for decades after its introduction. However, the theory failed to become an accepted industry practice, so we'll explore why that is and what advances have developed in recent years to address the shortcomings of the original model. The Problems with Markowitz For the purpose of illustrating the benefits of diversification in a simple two-asset portfolio, Markowitz's model was a useful tool in producing optimal weights at each level of assumed risk to create efficient portfolios. However, in reality, investment portfolios are complex and composed of large numbers of holdin

Evidence the SPY is Overbought...

A quick note on the recent market rally here of late. It's plain to see the markets have been on a tear for the month of June (and going back into May for the QQQ) as the SPY closed today at its highest level in almost fourteen months. If we start to look at the historical levels, however, it appears the SPY may be overbought in the short-run and susceptible to a mean-reverting pattern. Here's the daily chart of the SPY as of today's (6/15/23) close... When looking at the distance between the closing price and the 50-day moving average (illustrated by the yellow bar), we're noticing a large gap... this can be measured by a statistic I developed which I casually refer to as "variance"... or the distance between current prices and their respective moving averages. Historically, throughout the life of the SPY (which debuted in January of '93), the variance over the 50-day moving average has peaked at a reading of 3.20... today's reading posts up at 2.49

Blue Horseshoe Loves This Finance Blog

Search This Blog