4-2-17 Market Commentary



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Market Breadth
: With this past week’s market advance, our Bull/Bear Point and Figure Ratio at 1.31 rose from 1.10 last week, gaining strength, and remaining within bullish territory. The total count of securities in bullish or bearish patterns decreased 3% to 3007. The count of bearish stocks decreased 12%, while the count of stocks in bullish patterns increased 5%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now twenty weeks in bullish territory. Paid subscribers have access to the OpenOffice Calc data from which the chart is generated.

The well known market breadth indicator, the NASDAQ McClellan Summation Index (NASI) rose 90 points for the tenth advance in twenty weeks. At a positive 4.92 points, it continues below all seven tops above +100, and it continues above all four bottoms below -100 in the last 3 years. 

Volume Analysis:
In this week’s volume analysis, the NASDAQ Composite Index ended in Distribution mode with average daily volume lower than the prior week. In the last two weeks the NASDAQ had three (3) Accumulation days and two (2) Distribution days. (Accumulation days are counted when the index closes up on higher volume than the prior day while Distribution days occur when the index closes down on volume higher than the prior market day.) Last week the NASDAQ ended in Accumulation mode on lower average daily volume.

: Now at +121.64, up from -72.63 last week, the CCI(20) daily fell below zero for 5 consecutive days before rising above it, so the Woodie’s trend remains Up.
In Woodie’s CCI trading system, six consecutive bars above or below zero are required for a change of trend. The Weekly CCI(20) of the NASDAQ Composite Index began a Woodie’s up trend forty-eight weeks ago, while the Daily CCI(20) began a Woodie’s up trend nineteen weeks ago.
The CCI(20) weekly has fallen to +94.86 from +96.47 last week. We await the return of the CCI(20) weekly to the +/-50 range for another trade.

Industry Rotation the last two weeks
: All of the top five industries are positive and all of the bottom five are negative. Summary: Some Tech and REITs on top, Banking and Brokers on the bottom. Bullish: Computer Hardware continues in the top five. REITs continues in the top five. Disk Drives has re-entered the top five. Gold & Silver PHLX has left the top five. Bearish: KBW Bank and Brokers continue in the bottom five. Networkers has entered the bottom five. Oil Services PHLX and Oil have left the bottom five. 
Focus this week: From www.zerohedge.com because a good detective story is always fun AND from our –stabilizing the market by betting like you want to DE-stabilize it –department… “Who Is The Real “50 Cent” – A Mystery Trader Is Systematically Betting Massive On A VIX Spike“. The following are some key points and charts.

  • VIX Call volumes had exploded in recent weeks, accelerating to their highest levels since Brexit ahead of the healthcare vote, which saw VIX spike dramatically to 2017 highs.

  • However, in the aftermath of the pulled vote debacle, VIX collapsed at a near record pace, as did VIX Call volumes (trading at their lowest level since 2016).

  • The question many had was – why the sudden rush to complacency after an event that merely increases the uncertainty of Trump stimulus – the only leg left standing for any self-respecting asset-gatherer defending “Long Stocks” to his client base.

  • Pravit Chintawongvanich, head of risk strategy at Macro Risk Advisors, may have found the answer…

    A pattern of huge, near-daily trades on the VIX is turning heads in the options market.

    What’s most notable is that even after losing some $75 million by betting on a volatility spike, the huge options buyer known as “50 Cent” shows no signs of slowing down. “I would categorize them as someone who doesn’t flinch at losing money,” commented Chintawongvanich who flagged the activity in a series of research notes.

    The money-losing trades in question have been purchases of call options on the CBOE volatility index. These represent bets that market volatility is set to rise, and to a lesser extent, that stocks are set to fall.

  • Unsurprisingly, this strategy appears to have a marked effect on the overall market for VIX options. Total VIX call open interest has risen to an all-time high thanks to 50 Cent’s purchases, Chintawongvanich said.

    And so we come full circle to the question of why the sudden rush to complacency among options traders following the pulled healthcare vote. Ironically, the huge bets on the VIX could end up dampening volatility.

  • Jake Weinig, founding partner at options-centric hedge fund Malachite Capital, commented in an email to CNBC that “the size is probably too big”; the very enormity of the trade “almost makes it a self-fulfilling prophecy that it won’t pan out.”

–Donald Pirl www.s2pmarketsignal.com

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