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Tickling The Dragon’s Tail

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By geralt from PixabayTickling The Dragon’s Tail

So we’re going to do a momo update today and I think it’s going to blow your mind. But first let me briefly explain what happened this morning which led me to look at those momentum and volatility charts in the first place. If you may recall yesterday’s lottery ticket on the E-Mini went bust by just a tick or two after which the SPX actually ended up bouncing back.

So I look at UVOL and it looks pretty damn bearish except of course for the late session candle painting pump. So of course I’m starting to wonder if we may be sloping over in the near term future, because with the Dollar heading into Italian Lira territory we should have busted higher to grab that new flag.

I guess you may agree that this formation looked too juicy to to pass up. Of course in retrospect my stop ought to have been a bit further below that 100-hour SMA. My bad.

Market Breadth

If you’re a noob – no it has nothing to do with halitosis (google is your friend – actually strike that). If you’re already familiar with this chart then you recall that we have long been expecting a price reaction but to our credit didn’t jump the gun ahead of price actually exhibiting weakness. Yes that’s right the stainless steel rats have learned their lessons over the last decade.

Anyway, so here we are again tickling the dragon and with equities basically heading straight up I don’t think it’s unreasonable to expect at least a small obligatory dip lower? Taking one for the team so to say?

Sentiment And Money Flow

Our old favorite – the CPCE Deluxe. The Count is running out of fingers at this point (he’s got four – I checked) with yet another spike higher and no price reaction whatsoever. I am the first one to admit that bearish signals are a lot more unreliable in this bull market but if you review historical record we ought to have gotten at least get a wiggle lower. This is completely unprecedented.

Here we are looking at high beta vs. low volatility stocks. What we want to see is a juicy divergence as the high beta ones usually get hit first when things start weakening like in the past day or so. But NOTHING!

FAGIX is a high income fund which obviously means it’s composed of mostly junk bonds. And it seems investors can’t get enough of them.

I hope you’re sufficiently warmed up because what’s below the fold is going to boggle your mind…

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Published at Fri, 19 Jan 2018 14:42:31 +0000

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Tripping Over Skew

 

Tripping Over Skew

by THE MOLEAUGUST 28, 2017

Apologies for the late post today but I have been on coding duty over the weekend into today, as I wanted to put together a few more weekly statistical charts for you guys. While hacking away I realized that I had actually made a mistake in labeling the weeks, and that means we are currently in week #35 and not #36. Which incidentally makes quite a bit of difference.

SPX.XO_monthly_skew_stats

But before we get to the weekly goods let’s cover a related topic which is SKEW. We covered it here before and this may be obvious to some of you guys. But nevertheless it is something I tripped over today and attempting to ‘fix it’ cost me several hours of utterly wasted time (hence the late post today) and reduced time at the gym (even worse!). Look at the mean monthly skew for the S&P 500 shown above. Does this look accurate to you? It actually is but I’m pretty certain some of you guys are wondering why the S&P has negative skew almost all year.

Skew

And this is why, it all comes down to the definition of SKEW which basically defines ‘positive skew’ as left leaning and negative skew as right leaning. No political jokes or Trump bashing please 😉

SPX.XO_weekly_change_stats

Now let’s look at week #35 which actually has a decent positive mean weekly return since 1957.

SPX.XO_weekly_skew_stats

And the SKEW for this week is -0.5. I actually pulled out all the values for just week #35 and plotted the date range just to make sure. It has a negative skew of -0.5 and understanding how skew is calculated is very helpful when observing the actual histogram:

SPX.XO_week_num_35_histogram_b

Which of course simply plots the correlation between returns and their probability. And here we are of course seeing a concentration of bars in the positive range. Which now makes a lot more sense, doesn’t it?

Most likely I will however wind up flipping the axis of all the skew charts as to not confuse people (or myself – ahem). Figuring that one out will most likely cost me another patch of hair, but in the end it’ll probably pay off as won’t have the explain the topic every single time.

More juicy stats for this week below the fold:

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Published at Mon, 28 Aug 2017 14:05:59 +0000

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