.

Summary

Last week’s call worked out very well! The market closed above it’s weekly opening.

Setup for week 8 is broadly positive, hence I expect another week higher.

.

Price Action / Benchmark

[bullish]

• Direction: long term up, intermediate-term up
• Volatility: very low
• Trend: intermediate term trend is stretched, though not exhausted, long-term trend (TSI) is up
• Channel: intermediate channel position very low
• OB/OS: RSI(5)>50 and <75, RSI(10)>50 and <75

.

Seasonality

[bullish]

Seasonality is bearish for February,  applying directional market filter the setup becomes rather bullish for (K-L).

Week 8 is having a negative bias.

.

Correlation

[bearish]

Short and intermediate-term correlation (N) environment among S&P500 is raising, hence signaling a slightly negative outlook.

.

Breadth

[bullish]

Market Breadth (O) is up, indicator value is at highest quartile. Intermediate term trend of market breadth is trending down.

.

Sectors

[neutral]

XLI (Industrials) and XLF (Financials) continued it’s leadership (P). For the setup I considered only weeks where the correlation (sector ETF vs SPY) is high. Very little meaning can be drawn from this setup.

.

Bonds

[positive]

RISK ON for the bond market (Q). Generally this is positive for the stock market, especially with a combined setup of DIRECTION & VOLATILITY.

Update

.

.

Summary

Last week’s call worked out very well! The market worked of it’s overbought levels and closed next to previous Friday’s close.

I do expect a positive week with a SPY close above Monday’s open.

.

Price Action / Benchmark

[bullish]

• Direction: long term up, intermediate-term up
• Volatility: very low
• Trend: intermediate term trend is stretched, though not exhausted
• Channel: somewhat higher than last week,position lower part
• OB/OS: RSI(5)>50, RSI(3)<50

.

Seasonality

[bullish]

Seasonality is bearish for February, though applying directional market filter the setup becomes rather bullish for (K-L).

.

Correlation

[bullish]

Short and intermediate-term correlation environment among S&P500 stocks remains healthy (N).

.

Breadth

[bullish]

Market Breadth (O) is up, though significantly overbought on intermediate-term levels. Combining that with a short-term pullback the setup turns very bullish (P).

.

Sectors

[neutral]

XLI (Industrials) and XLF (Financials) continued it’s leadership (Q). For the setup I considered only weeks where the correlation (sector ETF vs SPY) is high. Very little meaning can be drawn from this setup.

.

Bonds

[positive]

RISK ON for the bond market (R). Generally this is positive for the stock market, especially with a combined setup of DIRECTION & VOLATILITY.

.

$SPY 

Update

The performance report has been re-done in order to provide you with better readability and higher consistency among the various setups. Furthermore  the trade statistics will have one additional piece of information: Sharpe ratio of trades. Usually Sharpe Ratio is calculated based on an equity curve (daily returns). As we are not looking at a complete trading systems, i decided to take the Sharpe Ratio of  trades. That piece of information should indicate the consistency of a given setups and resulting trades. Sharpe ratio of trades is defined as: annualized average percentage return  of trades divided by annualized standard deviation of returns (trades).

.

Price Action / Benchmark

[positive]

• Direction: long term up, intermediate-term up
• Volatility: very low
• Trend: intermediate term trend is stretched, though not exhausted
• Channel: position lower part

Ad-Hoc setup (F) is somewhat bearish. I tested many other setups in combination with RSI(3)>90,  but haven’t found a bullish case.

.

Correlation

[positive]

Intermediate-term correlation remains low (J-K).

.

Seasonality

[positive]

Seasonality is bullish for (G-I).

.

Breadth

[neutral]

Market Breadth (J) is up, though significantly overbought on intermediate-term levels.

.

Sectors

[neutral]

XLI (Industrials) and XLF (Financials) continued it’s leadership (M). For the setup I considered only weeks where the correlation (sector ETF vs SPY) is high. Very little meaning can be drawn from this setup.

.

Bonds

[positive]

RISK ON for the bond market (N-O). Generally this is positive for the stock market, especially given the DIRECTION setup.

.

Outlook

Last week’s call worked out! The market closed higher than it opened.

The market needs to work of it’s overbought conditions. For the coming week I expect a modest pull-back while Friday’s close is near the close of last week.

Update

(click to enlarge)

Seasonality

[positive]

Last week of January has a bullish bias (B/C).

Price Action

[positive]

Trend conditions signal a positive environment (D/E). Volatility continues to decrease on multiple time-frames (F/G) as the market remains somewhat overbought (G). A combination of low volatility, positive trend as well as slightly overbought conditions signals a positive week ahead (H).

..

Correlation

[positive]

Correlation analysis is a new feature of this and coming weekly 360° reports. For this study I calculated a correlation matrix of all S+P500 stocks (without survivorship bias). An environment with weak correlation among the S+P500 members indicates a healthy environment. The conclusions taken from this study are based on extensive research. At a later point I will do a detailed post about the implications of weaking / strengthening correlation.

During last week correlation continued to decreased providing us with a very bullish bias.

.

Breadth

[positive]

Market Breadth (K/L) continues to be healthy, but weakened during last week indicating a good environment.

.

Sectors

[neutral]

Sector leadership (M/N) changed during the week. While XLI (Industrials) continued it’s run, XLF (Financials) came in second. XLI/XLF combination doesn’t give any insight about what to expect.

.

Bonds

[positive]

The bond market (O/P) continues to improve as risk willingness is increasing. Bond market signals RISK ON mode.

.

Outlook

Last weeks prediction worked out – the market showed a lower low than the opening of that week while maintaining overall price levels.

During last week intermediate term overbought levels decreased. Overall picture continues to improve, especially the Bond market. I expect the week to close higher than it opened.

Update

.

Price Action

[neutral]

Volatility continues to decrease on multiple time-frames (F) as the market remains overbought (E). A combination of very low volatility within an overbought market triggers a negative signal (J).

..

Seasonality

[positive]

Seasonality is bullish for week 4 (C/D).

.

Breadth

[negative]

Market Breadth (J) is up, though significantly overbought.

.

Sectors

[negative]

Sector leadership (K/L) changed during the week. While XLI (Industrials) continued it’s run, XLY (Consumer Discretionary) came in second. XLI/XLY combination signals a healthy environment. Combined with an intermediate oversold filter we’ve got a slightly negative setup.

.

Bonds

[positive]

The bond market (M) continues to improve as risk willingness is increasing. Given the small sample size this setup has a lower significance.

.

Outlook

Last week’s call worked out! While the overall environment continues to improve the market is significantly overbought and due for a pull-back. For the coming week I expect a lower  low than the week’s open.

Update