Posts Tagged ‘S&P500’

Forecasting the S&P500 using the VIX

Forecasting the S&P500 using the VIX

Courtesy of Rohan at Data Diary 

McClellan Financial Publications had an interesting analysis last week (here) that looked at “Tracking the VIX response to Price Moves” in the S&P500. A key conclusion of the analysis was that divergences between the two indexes can signal turning points in the S&P500.

The concept seemed a good one – worthy of further investigation.

However, rather than asking how the VIX responds to changes in the S&P500, we turned it around and asked how does the VIX anticipate changes in the S&P500. Perhaps it’s the same question – as who knows which leads which. In any event, it seemed easier to understand a model that mapped the S&P500 as implied by movements in the VIX.

So following are the charts of the actual S&P500 and that implied by movements in the VIX starting from 1Oct09:

Our results are broadly similar.  Three key divergences between the VIX derived S&P500 and the actual price were identified that did indeed precede changes in price direction. At price extremes, there arose a disconnect between the behaviour of option traders and the broader equity market.

Most unhelpfully, the seeming catalyst for McClennan’s article – that we may currently be witnessing another divergence developing was not really confirmed. Though it’d be fair to conclude that the derived S&P500 chart has all the hallmarks of a market undergoing a topping process. We’ll watch this indicator with interest to see how things develop from here.

Epilogue:

Note that correlation changes over time and, not unsurprisingly, falls the longer the period under consideration.  So that the correlation is ~74% for the period 2004 to today, rising to 79% from Jan08, and is 85% for the last year. As with most time series analysis, the start date will have an impact on results.

In backtesting though the analysis retained its value. For example, there was a significant divergence between the VIX derived S&P500 and the actual S&P500 index around the March 2009 lows. The longer term data set is as follows- note the relative performance through 2007:

 


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CHART OF THE DAY: REVISITING THE MARCH LOWS?

If history repeats, keep this chart in mind.

CHART OF THE DAY: REVISITING THE MARCH LOWS?

Courtesy of The Pragmatic Capitalist

According to Bloomberg and Jim Reid, we’re likely to see much lower valuations (and stock prices) at some point in the next few years:

June 22 (Bloomberg) — U.S. and European stocks are destined to fall below March’s lows if bear-market history is any guide, according to Jim Reid, a strategist at Deutsche Bank AG.

Share prices tend to hit bottom “at extremely cheap levels” relative to earnings during so-called secular bear markets, Reid wrote five days ago in his first equity strategy report. Secular bears consist of multiple rallies and declines, with each slump producing lower valuations than the prior one.

The CHART OF THE DAY shows the Standard & Poor’s 500 Index’s price-earnings ratio since 1900, based on data compiled by Yale University’s Robert Shiller and cited in Reid’s report.

stocks666

Shiller calculated the P/E ratio at 6.6 in September 1982, just before the 1980s bull market started. The gauge sank to less than six in the depths of the Great Depression and at the beginning of the 1920s. This year, it has stayed above 13.

“History tells us that at some point in the next decade there will be much more stressed valuations than today and a once-in-a-generation buying opportunity,” wrote Reid, who previously focused on credit-market strategy.

Even “a large rally” later this year and into 2010 may not be enough to prevent this scenario from unfolding, he added. The S&P 500 has climbed as much as 40 percent from its March 9 lows. Reid’s European benchmark, a local-currency version of the MSCI Europe Index, has risen as much as 33 percent.


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Zero Hedge

Powell's Stock Trades Leaked, Show Multi-Million Sale As Market Tanked

Courtesy of ZeroHedge View original post here.

With leaked trades in their personal accounts already costing two Fed presidents their jobs, and a third - vice chair Richard Clarida - currently on the ropes amid speculation he will soon follow, a few weeks ago we joked that if forces within the Fed want to get rid of all the hawks, they should just leak Esther George - the Fed's last remaining uberhawk - trading record.

If the Fed wants to get rid of all the hawks, they just need to leak Esther George's etrade blotter

— zerohedge (@zerohedge) ...

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Phil's Favorites

Another Fed Bank President's Financial Disclosures Fail the Smell Test

Courtesy of Pam Martens

Atlanta Fed President, Raphael Bostic

Private Banks operated by the mega Wall Street banks have an unseemly reputation. So when we opened Atlanta Fed President Raphael Bostic’s financial disclosure forms and saw that he had a financial relationship with Morgan Stanley’s Private Bank, a red flag went up immediately.

Citibank’s Private Bank was previously the subject of an investigation by the U.S. Senate’s Permanent Subcommittee on Investigations. At a h...



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Chart School

Price and Volume Swing Analysis on Bitcoin and Silver

Courtesy of Read the Ticker

Many take guidance from news, pundits or advisors. Well sometimes the swings of price and volume are a better measure of what happens next.

The big boys do not accumulate or distribute in single 1 second trade, they build positions over weeks, months and years. They use price swings in the market to build or reduce positions, and you can see their intent by studying swings of price and volume and applying Tim Ord logic as written in his book called 'The Secret Science of Price and Volume: Techniques for Spotting Market Trends, Hot Sectors, and the Best Stocks'.

Tim Ord is a follower of Richard Wyckoff logic, his book has added to the studies of Richard Wyckoff, Richard Ney and Bob Evans.

Richard Wyckoff after years of...

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Digital Currencies

Ethereum's Turn To Outshine Bitcoin Is Coming, UBS Says

Courtesy of ZeroHedge View original post here.

After a stellar start to the year, which saw its price soar to an all time high above $4,100, trouncing virtually all of its crypto peers, Ethereum has stagnated in recent weeks, with its place in the spotlight taken by bitcoin whose impressive outperformance has been the result of now confirmed speculation that a bitcoin futures ETF is coming. It also meant that what has traditionally been a close correlation between the two largest cryptos has broken in favor of the larger peer; it would also suggest that ethereum is trading about $1000 cheap vs bitcoin.

...



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Politics

Steve Bannon faces criminal charges over Jan. 6 panel snub, setting up a showdown over executive privilege

 

Steve Bannon faces criminal charges over Jan. 6 panel snub, setting up a showdown over executive privilege

Defiant or following Trump’s direction? John Lamparski/NurPhoto via Getty Images

Courtesy of Kirsten Carlson, Wayne State University

The House committee investigating the Jan. 6 attack on the U.S. Capitol is tasked with providing as full an account as possible of the attempted insurrection. But there is a problem: Not everyone is cooperating.

As of Oct. 14, 2021, Steve Bannon, a one-tim...



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Biotech/COVID-19

Ivermectin is a Nobel Prize-winning wonder drug - but not for COVID-19

 

Ivermectin is a Nobel Prize-winning wonder drug – but not for COVID-19

While ivermectin was originally used to treat river blindness, it has also been repurposed to treat other human parasitic infections. ISSOUF SANOGO/AFP via Getty Images

Courtesy of Jeffrey R. Aeschlimann, University of Connecticut

Ivermectin is an over 30-year-old wonder drug that treats life- and sight-threatening parasitic infections. Its lasting influence on global health has been so profound...



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Promotions

Phil's Interview on Options Trading with TD Bank

TD Bank's host Bryan Rogers interviewed Phil on June 10 as part of TD's Options Education Month. If you missed the program, be sure to watch the video below. It should be required viewing for anyone trading or thinking about trading using options. 

Watch here:

TD's webinar with Phil (link) or right here at PSW

Screenshots of TD's slides illustrating Phil's examples:

 

 

&n...



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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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