About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.

Complacency in the Volatility Market

I was away from the office for a few days but upon returning it’s nice to see that trades have pushed equities higher as some of the major indices approach their prior highs. However, this has caused volatility to get back under 14 and the level of compression within the $VIX has hit such a level that causes me to give pause.

Volatility of volatility (as measured by VVIX) has fallen back to a level that for the last year and half has marked several low points for the $VIX.

VVIX

This, along with several other indicators that I closely monitor, has me watching volatility right now. While we head into a long holiday weekend, Jason Goepfert of SentimenTrader notes that since 2010 seasonality after Memorial Day hasn’t been extremely bullish for stocks, “Since 2010, the week of the holiday (next week) was positive only once (+1.2% in 2014). The other five years averaged a loss of 1.9%. None of the six years saw the S&P rally any more than 1.5% at its best point during the week.” Not that markets must follow their past playbook, but this negative slant of seasonality paired with what I’m seeing in volatility markets could play out in the bears favor in the coming weeks with a pop in the $VIX. We’ll see what happens.

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.

Why It’s Tough To Get Excited About Equities Right Now

Saturday marks the one year anniversary of the all-time high for the S&P 500 – and yet since then the market has been just a few percentage points away almost the whole time. How depressing is that? This range bound market has tested the patience and fortitude of many traders as they try to find an edge in a painfully boring tape. While we’ve seen some swings in both directions, stocks have largely been unable to show any strength after the weight of the evidence back in July turned bearish, which I wrote about back in late-July in a post titled The Greatest Risk of A Market Peak Since 2007.  

While there’s several pieces of data you could point to that show hints of brighter days ahead, when you look at just a basic chart of the major indices, it’s tough to get very excited. The S&P 500 as created a clear level of resistance at 2110. the Dow Jones Industrial Average has put in a false break out from its prior high as price has come back into its year-long range. The Russell 2000 is in a down trend of lower highs and lower lows – as is the international index MSCI EAFE.

equity

Eventually we’ll see a breakout. It could be to the upside or to the down, at this point this look more poised for the bears to retain control but as a price-focused trader I’m prepared for either conclusion. Patience has never been more of a virtue than the last twelve months in the equity markets.

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.

The Clues to Potentially More Strength For Natural Gas

This was the warmest winter on record according to many sources and apparently February and March were the warmest they have ever been as well. This is one reason investors have pointed to as to why Natural Gas prices have fallen – along with supply rising to historic levels as well. There’s been much discussion over the weather impact of La Nina, which is expected to shake things up this year with potential hurricanes and droughts across the globe. The National Oceanic and Atmospheric Administration predict a 40% chance of a related event by September. Luckily, as chart-focused traders we don’t have to be overly concerned with weather predictions. Let’s see what price is telling us about Natural Gas….

Spot nat gas prices have risen over 25% since their March low, sending the price action right back up to its 100-day Moving Average and creating a false breakdown below the prior December low. The 100-day MA was last tested back in early January as traders were unable to maintain their bullish bias and keep price from declining. As price ‘digests’ this previously important Moving Average, it appears momentum and trend strength are favoring higher prices.

Focusing on momentum, in the top panel of the chart below we have the Relative Strength Index (RSI). The March low created a bullish divergence that led to the 25+% rise and sent the indicator back to its prior most recent high. This is an area I’ll be watching going forward, waiting to see if momentum can breakout from this area of resistance.

In the bottom panel I’ve included the Average Directional Index indicator, which measures trend strength. As you can see, we also saw a lower high in this measurement as well – providing a clue that the down trend was losing some of its strength on that second leg lower.

nat gas chart

When reviewing commodities it can be a good idea to review seasonal charts as well, as many commodity trade in a seasonal pattern throughout the years. When looking for a market to break out or change trend, we’d prefer to not be fighting against an opposing seasonal direction. For Natural Gas, we can see in the chart below that the 5-, 10-, and 15-year seasonal studies show a low in March with price advancing until mid June. This lines up nicely with what we’ve seen play out so far this year.nat gas seasonalityAs I said before, going forward I’ll be watching the 100-day Moving Average and the resistance in the RSI momentum indicator for clues to nat gas’s ability to continue its current trend higher. We also know that we may get a weather tailwind this summer which could also add some juice to the price trend in the coming months.

 

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.