June 2015 – Andrew Thrasher

One Of The Largest Single Day Advances in Volatility History

Posted on June 30, 2015 by Andrew Thrasher, CMT

Yesterday was full of news out of Greece and whether the country could pay its debts while its citizens lined up to take a small maximum amount out of their checking accounts. As far as the equity market was concerned, the world was crashing! At least that’s what you would have thought by seeing how far the Volatility Index ($VIX) had risen.

On Twitter last week I mentioned that the way price and certain pieces of price-related data/indicators were acting, it seemed like we were setting up for a rise . Since then the $VIX has spiked over 55%.

From some of the data I watch, I think we could see a decent sized pop in the $VIX in the next day or so. Seems like something is brewing.

— Andrew Thrasher, CMT (@AndrewThrasher) June 23, 2015

In fact, this was the 11th largest rise in Volatility in 20 years! Only twice during the 2008 Financial Crisis did we see the $VIX advance by a greater amount in a single day. We finished up trading on Monday with the ‘fear index’ up nearly 40%. I’ve been discussing the decline breadth and momentum on both the blog and on Twitter, the number of stocks rising just hasn’t been able to keep up with the overall index. When this type of thing happens, a spark of international drama can be the needle that breaks the equity camel’s back, at least in the short-term, sending fear soaring like we did today.

So when were the most recent times this measure of trader concern rose at such a fast pace? 2011 and 2013. From those large pops in the the $VIX we saw Volatility mean-revert, falling 70% and 30%, respectively over the next days/weeks. I’m not calling for an immediate decline in Volatility, but historically it does tend to lose steam after such a strong rally, we’ll see if this time is any different.

Full Disclosure: Certain client accounts may have positions in Volatility-related ETPs upon the time of this writing

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Has Industrial Production Peaked & Does it Matter?

Posted on June 24, 2015 by Andrew Thrasher, CMT

While my main focus is technical analysis and analyzing and monitoring price action, part of my job as a Portfolio Manager at the asset management firm I work for is to also monitor economic changes. I have two economic models that I track which have done a fairly good job at measuring the economy and forecasting recessions. Neither of my models are suggesting we are on the brink of a recession and if they did it would still take a backseat to price action as I form my market opinion.

However, I do find it interesting that Industrial Production peaked (so far) back in late 2014. This set of data is not very volatile and remains in well-established trends most of the time. So the fact that it’s been declining for the bulk of 2015 is interesting to me.

Below is a chart of Industrial Production going back to 1988 along with a 20-period Moving Average and I’ve included the S&P 500 in the top panel just for fun. You can see what I mean when I said that Industrial Production, at least for the last almost 30 years has stayed in some kind of trend – up or down – most of the time. I took the data back to ’88 to show there has been instances where the data began to whipsaw without a trend to remind you that nothing is perfect or trends 100% of the time.

I’ve put the 20-MA to help define the trend and also because it’s interesting how the market ‘reacts’ when industrial production declines below this Moving Average. We saw this happen in March ’08, Jan ’01, and Oct. ’90. Now we obviously are still above the long-term Moving Average at the moment. But it does seem like we may be seeing the start to a change in trend for this piece of economic data which has previously lead to some rough periods in the past. Making the conversation about the Fed raising rates that much more interesting.

The next question we must ask, and it’s the million dollar question, is does Industrial Production still matter? This reminds me of a post I wrote about semiconductors replacing copper as an indicator of risk-taking. Does the same idea apply here? Has our economy shifted enough away from being an industrial powerhouse that we can still see solid economic growth without the industrial complex? That’s the question we must ask and it’s the question we do not have an answer for. I think if we see a continuation of deterioration in this data set it will jump on many fund manager’s radar and if enough people deem it important, the market will likely grant their wish and make it so. Time shall tell and luckily those that follow price will be the first to know. Nonetheless, the chart of Industrial Production declining peaked my interest and thought it worthwhile to share.

Japanese Equities Create A Possible Double Top

Posted on June 18, 2015 by Andrew Thrasher, CMT

While the U.S. markets continue to figure out its own identify, whether it’s meant to spend the next few months as a bear or a bull there are some interesting chart setups taking place in a couple international markets. Today I’m going to take a look at one foreign market specifically, Japan.

Below we have a daily chart of the iShares Japan ETF ($EWJ) going back the last twelve months. After breaking above prior resistance earlier year around $12.20, Japanese equities have had a nice run, up about 10% to its YTD high. We’ve seen continued pushes in momentum into ‘overbought’ territory, which as I’ve said previously on the blog – this is typically a good thing. It shows a healthy sign of buying.

However, recently a possible double top has been created as $EWJ tried to re-take its April high last month but was unable to do so. While making a run back to $13.30 the Relative Strength Index (RSI) put in a lower high, a sign that momentum was not confirming the advance in price and had begun to weaken.

Since then price has fallen back to its prior low just under $12.80 and could possibly head even lower. What I’ll be watching with this Japanese ETF is if it can find support at its 100-day Moving Average and if not then price could find itself back at the level that had been resistance in 2014 at $12.20. If price is able to hold above $12.80 then we may see a continuation of the current trend and another attempt to set a new high. I’ll let price lead the way.

The Equity Chart I Keep Turning Back To

Posted on June 9, 2015 by Andrew Thrasher, CMT

When it comes to U.S. equity markets I’ve been fairly vocal on both the blog and on Twitter about my concern with the price action and ‘health’ of the trend for 2015. In January I wrote about why it’s possible we may not see a gangbusters year for stocks, and so far being more than five months in the Dow is negative and the S&P is basically flat.

We haven’t seen this few of individual stocks confirming the last high in the S&P 500 since 2012 and before that was the ’07 peak and series of occurrences between 2004 and 2006. While many traders have written off breadth because of the lack of confirmation to prior divergences over the last two years. But this is like a doctor ignoring a patient’s symptom just because his past five patients had the same symptom but were deemed to not be sick.

Some traders still hope there’s cash ‘on the sidelines’ and that will be the catalyst to stocks going higher. But as Ned Davis pointed out, there just isn’t that much cash left to be soaked up.

But with all that, the chart below is what I keep coming back to. It’s a weekly chart of the S&P 500 ($SPX) along with two moving averages and two momentum indicators. We often talk about the previous importance of the 100-day (20-week) Moving Average, which is shown by the red Moving Average on the chart. Along with the 50-week Moving Average (green line) which has ‘caught’ the prior three dips in stocks since 2012 and helped define the current up trend.

And then we have momentum. The Relative Strength Index (RSI) is still in a bullish range, with the indicator above prior support at 42. However we do have a well-defined negative divergence as price has gone higher while the RSI has been declining. The same can be seen with the MACD, which has been making a series of lower highs since the start of 2014.

So what do I almost always say I’m looking for at the end of most of my posts…Confirmation! The lack of breadth, the lack of cash, the decline in momentum, and the shift into bearish seasonality are all important factors but until price confirms they mean nothing. What do I consider price confirming these host of bearish signs? I would say a good break of the 50-week Moving Average (not just a 1 or 2 point dip below) would likely do it. We aren’t there yet so I am not putting my helmet on at this point and hopefully I won’t have to. We’ll see.

Have Traders Begun Shifting Back to U.S. Equities?

Posted on June 2, 2015 by Andrew Thrasher, CMT

One of the major themes that kicked off 2015 was the shift from domestic equities to international. Many try to explain the shift as being caused by the large influence that foreign central bank had via easing coupled with the rise in the U.S. dollar. But we don’t know for sure – all we know is that it happened. By looking at relative performance charts we can see that International markets, as measured by the iShares MSCI EAFE Index Fund (EFA) began outperforming domestic stocks (i.e. the S&P 500).

However, that seems to be shifting once again as domestic markets have begun outpacing their international brethren. In the chart below, we can see the ratio between EFA and SPY (the SPDR S&P 500 ETF).

Keep Reading: Are Traders Leaving International Markets in Favor of the U.S.? (See It Market)