Friday’s Market Buy/Sell Strength + Sectors + PPT Most Discussed!
As always, I present to you my annotated Market Buy/Sell Strength Indicator, plotted with the S&P500, allowing even the most fletting of minds to quickly glean via color-coded arrow what this custom indicator is saying about the broader market.
You may have noticed a change in the way the bars are colored. Â I will explain that, but first…
I like clean charts. Â You probably have noticed that there is not a lot of extraneous info, MAs, indicators and etc on my charts. Â This is because price action is the only indicator you really need to follow. Â In that vein, I constructed my indicator to only measure price action, and statistical deviations thereof.
Measuring the statistics my charts generate allows me to create my own volatilty indicators. Â Before, I was coloring my charts on a price action code. Â Now, they are colored based on whether my system is detecting bullish or bearish volatily patterns.
THIS HAS NOTHING TO DO WITH THE VIX.
There is no VIX in any/all lines of code. So when I say “volatility patterns,” don’t confuse that with VIX analysis (which, OT, is the most popular largely misunderstood indicator).
Every other aspect of the chart is the same however.
[click on all charts to expand]
Regarding the Bullish/Bearish volatilty detection, I must say I’m amazed by the accuracy, but there is one glaring wrong call. Â My system detected bullish volatilty patterns for the plunge in November of 2008, which for a few days was spot on, but quickly turned into a mess. Â On one hand, I like how it keeps you in trades, and generally nails the entries. Â On the other hand, November of 2008. Â Fortunately, Nov. 2008 is the only time where the volatility detection really blew it. Â Every single other trend period it caught.
I have a point to make about that though  – I am treating the volatility patterns like a signal, but at the same time, keep in mind that all this is really telling you is whether or not the underlying volatility patterns suggest a bullish or bearish market.  It takes in NO consideration of trend, support / resistance, etc. Had some of those other factors been considered, perhaps they would have kept you out of trouble in November.  I am working on adding those considerations to the code.
What follows is some sectors, leading stocks, and a few PPT Most Discussed stocks, all color coded with my price action formula (as opposed to the volatility detection). Â If I may be so bold, some of the “most discussed” stocks look like/are complete shit, so I am forced to assume (as is the case with AIG) that they are being discussed for comedy purposes. Â I picked the less heinous ones.
(XLF: 15.92 +1.21%)
(QQQQ: 47.67 +0.27%)
Potash Corp./Saskatchewan (USA) (POT: 125.69 -1.02%)
Goldman Sachs Group, Inc. (GS: 176.64 +0.26%)
(FAZ: 13.71 -3.31%)
Amkor Technology, Inc. (AMKR: 6.90 +0.88%)
Babcock & Brown Air Limited (ADR) Babcock & Brown Air Limited (ADR) Babcock & Brown Air Limited (ADR) (FLY: 10.08 -1.18%)
(WPRT: 16.55 +2.48%)
Thanks Danny
no prob Mael
Top notch again…hard work…”Fuck it, let’s [you need to] go bowling…
Anyway–suggestion–so that the market techie dudes don’t get overly confused by estimates of population statistics (parameters). Substitute “variability” or “variance” for “volatilty”. Variance is almost universally recognized as being different from implied volatility (VIX). That may help (?).
On the variance estimates of BSS, the statistic shows the direction of change, not necessarily the magnitude of change. That’s just a re-working of what you’ve said above…for instance; last 10 days, we’ve had some nice changes in BBS, but price action has been very modest. BUT, the significant thing is that the **direction** is nailed…
During Nov. (and other sell-offs or buy-ons) a reduction in variance during a “slow bleed” can sometimes (depending on how you’re calculating) show up as “buy strength” if you use a week-over-week or month-over-month difference. So, let’s suppose you’ve had a killer sell-off a week ago (with huge shifts in mean variance), and sorta just waffled around the next week with lower variance (like we did this week). That could shift the signal positive to green. (But, that positive shift in the next week will probably be around the z=1.0 region green, not much more)
Off to get a Caucasian (or two).
Great point and good idea about variance over vol. I was trying to nip the misunderstanding in the bud, so there hasnt been any confusion yet.
“During Nov. (and other sell-offs or buy-ons) a reduction in variance during a “slow bleed” can sometimes (depending on how you’re calculating) show up as “buy strength” if you use a week-over-week or month-over-month difference. So, let’s suppose you’ve had a killer sell-off a week ago (with huge shifts in mean variance), and sorta just waffled around the next week with lower variance (like we did this week). That could shift the signal positive to green. (But, that positive shift in the next week will probably be around the z=1.0 region green, not much more)”
This is an excellent point and one that is inherent in the type of analysis my chart is performing in that each data point is valid but the outliers effect the trend. A good example of this is the sell off in Nov being so out of the league of other data that it was basically statistically impossible for the month-over-month buy sell line to NOT trend up over the next few months. You could argue that it was a positive divergence as we made new lows for the period in november, but I think it was more the line normalizing than an underlying strength. Anyway, the point you made is one that I’m aware of but cannot be overlooked.