Table of Contents:
1. The Matrix
A. Buy Access
B. Free Access
2. Understanding the Matrix
3. Evolution of the Trade
1. Diffusion Index (DI)
1. Price Trend (TREND)
2. Volatility Bandwidth (BW)
1. Volume Trend (TREND)
2. Volatility Bandwidth (BW)
1. Aligned Up Metrics
2. Aligned Down Metrics
4. Alignment of Bitcoin since 2011
E. Professional & Public Indices
F. US Stock Sentiment Model
G. Intermarket Comparisons
1. Gold to Silver Ratio (GSR)
2. Junior to Majors Mining Shares Ratio (JMR)
3. Precious Metals Composite (PMC)
4. Retail to S&P 500
5. Junk to High Grade Bonds Ratio (JNK)
6. S&P 500 to High Grade Bonds Ratio (LQD)
7. US Stock VIX Model
I. Long Term Cycles
J. Timing A Correction/Crash In US Stocks
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The Matrix is updated daily. The computer updates tertiary (daily), secondary (weekly), and primary (monthly) trends of 45 markets and 14 companies ($AAPL, $AMZN, $ATR, $BABA, $CAT, $EBAY, $FB, $GE, $GOOG, $NFLX, $NVDA, $PAAS, $TSLA, $UUUU) after the close, and posts the Matrix into the cloud before the open of the NYSE exchange the follow day (See Free Matrix). Energy builds (DI) are updated weekly before the close of trading on the NYSE on Friday.
The Matrix also includes Intermarket analysis that includes market leadership and risk appetite, a true economic activity composite for the United States (EAC), and long-term concentration (cycles) and direction for US stocks, bonds, and commodities. The latter is important for long-term timing.
The Matrix is complied from daily, weekly, and monthly data sets of NYSE & NASDAQ listed equity proxies provided by yahoo.com, Commitment of Traders (COT) reports released by the CFTC with a 3-day trading lag (see COT Release Schedule), and public access databases. The Matrix is an array of Price and volume impulses, Energy, Time, Sentiment, Key Intermarket Trends & Comparisons, and Long Term Cycles and Trends that helps subscribers manage bullish and bearish positions in agricultural commodities, bonds, energy, foreign exchange, Bitcoin, commodities, precious metals, livestock, and global equity markets.
Yahoo and/or the CFTC reserves the right to terminate access to their data sets without warning or advanced notice. Calculation of the Matrix would be suspended until a new data source can be found. The Matrix cannot use continuous futures contracts due to the difficulty finding reliable and timely daily, weekly, and monthly data sets that are properly adjusted for rollover and carrying costs.
Evolution of the Trade: Applied to Silver
Evolution of the Trade
Subscribers use the Matrix as a tool to manage investments and trades. Trading could be described as a misunderstood process that oversimplifies trends, and ignores energy and cycles. Position trades, especially the more profitable ones, evolve slowly over time. The average primary trend impulse for all markets in the Matrix is 11 months. The Evolution of the Trade, a process that follows the primary and composite trend, energy within the framework of cycles, is defined by the following phases:
(1) The Energy Build or Nibble
(2) Primary Trend Breakout or Flip
(3) Alignment & Energy or Reset
(4) Primary Trend Decline or Aging Trend.
Phase 1 - Energy Build
The core long or short position can start as early as the Energy Build or Nibble Phase. Energy is defined primarily by the DI and DI2. The ProIndex, a measure of participation within the trend, can also be used when DIs are unavailable.
Energy builds are statistically significant DI & DI2 concentrations within aging primary trends. Aging primary trends are primary trends either in or recently emerging from Primary Trend Decline (PTD1 or PTD2) Phase (see Primary Trend Decline Phase). Energy builds, setups that can be drawn out processes defined by a large single DI concentration (spike) or clusters of them, most often precede primary trend flips. For example, palladium's bullish energy builds from 2015 to 2016 and 2018, events highlighted in white by the computer and marked by green cups, represent high energy builds that triggered an early purchase of the core position (see Palladium DI below). A conservative and tentative attempt to establish a core position is known as Nibbling. Nibbling, a process that can cover multiple months, represents buying or selling against the primary trend. Buying and selling against the primary trend can be dangerous. Nibbling attempts; therefore, must be conservative relative to final core position. High energy builds are statistically significant DI and DI2 readings or pairings (see Diffusion Index).
Initial construction of the core position through nibbling can be slow and unprofitable. Discipline and patience are important. Nibbles are sold if dissipation of the build fails to flip the primary trend, or risk management is triggered. An unsuccessful dissipation of a build would be an increase or decrease in DI with little influence on price. For example, a sharp decline in DI and falling DI2, would normally generate a rally. Failure to do so would be an unsuccessful dissipation of energy. This often happens when the primary trend is not ready to Flip.
The discipline trader that nibbled palladium's high energy build in 2018 was eventually rewarded by a primary trend flip.
Phase 2 - Primary Trend Breakout or "Flip"
Disciplined investors can establish and/or escalate the core position once the primary flips. All Flips recorded as monthly Bull (BuT) or Bear (BrT) counts = 1 or 2 or UP BO or DOWN BO in the Primary Trend Reference columns or Monthly (Primary) Trend columns (see below). Flips in progress, coded Fip in the Matrix with monthly time counts (BuT/BrT) = 1, are completed at the end of the month. Not all Fips are completed. Flips, coded F in the Matrix with monthly time counts (BuT/BrT) = 2, begin on the first trading day of the next month.
Not all Flips generate long-lasting trends. The computer won't recognize single month counts as failures until the end of the second month. 7% and 11% of all the bull (BuT = 2) and bear (BrT = 2) of all the historical Flips inside the Matrix fail. That is, they fail to generate trend counts of 2 months or higher. The computer is programmed to "see" flips at the end of the month. The single month count; therefore, shows no profit or loss. Flips most often fail because the composite trend, the combination of the daily, weekly, and monthly price and time cycles, is too extended. Flip also fail due to cause building, or transitional periods that easily disorganize the composite trend. This is why the disciplined trader understands the Cycle of Accumulation/Distribution, and uses protective stops to minimize losses if trading daily or weekly impulses. This rule is not altered by the duration of the trend. Risk management is the same for a trend count of 1 or 30 (months).
Flips in progress (Fip) and Flips (F) are coded in columns B-C of the Trends tab of the Matrix. Fips show monthly BuT/BrT =1, and are highlighted yellow for easy recognition. Flips, coded F in columns B-C, have monthly BuT/BrT counts of 2. Flips, the most significant phase in the Evolution of the Trade, are highlighted green until BuT/BrT > 2. Disciplined investors use Flips to complete or establish the core position.
The Primary Trend Reference Columns shows two Fips and six F (see table below). The Dow Industrials monthly count (BuT) = 46 is the longest bullish impulse in the Matrix. How many bearish stock market calls have hit the headlines over the past 46 months? Bulls might be cheering and feeling pretty good, but the ptd1 code in columns B-C and red highlighting in column D urges caution at least over the short-term (see Primary Trend Decline Phase).
Primary Trend Reference Columns
Monthly (Primary Trend) Columns
The Matrix represents numerical snapshots of the primary and composite trends. Although the format provides investors the information needed to follow the Evolution of the Trade, it can diminish an appreciation for the power of the primary trend. Primary trend impulses can produce profits that significantly outperform buy-and-hold strategies. Up and down impulses are highlighted by green and red boxes, respectively. Direction is important. Returns are limited to what the market gives. That's never 100% even for the highly disciplined trader. Also note that profitability and duration of alignments varies from market to market.
Palladium's Primary Trend
S&P 500's Primary Trend
Gold's Primary Trend
Bitcoin's Primary Trend
Wheat's Primary Trend
Natural Gas's Primary Trend
The Matrix's LeadM tab provides primary trend statistics for all markets tracked in the Matrix. Palladium's bullish and bearish alignment statistics, for example, are shown below.
Palladium's Bullish Alignment Statistics
Palladium's Bearish Alignment Statistics
Palladium's 12 up impulses have averaged 24 months and produced a 73% average return since 1977. The 73% is an average generated within rather than completed impulses. Averaging within impulses is selected because the disciplined trader rarely holds from incrption to completion of the impulse without exercising risk management (loss management) or profit-taking from cycle or energy extremes.
Palladium's last two primary trend alignments are shown the table below.
Palladium Primary Trend Impulse Statistics
The primary uptrend or Flip, an alignment that the bears believed was highly unlikely at the time, began at the end of August 2018 at Po = 93.29. The impulse continues today. Disciplined traders, those that follow energy and cycles, take profits when DI falls well below -60%, or the daily, weekly, monthly, or composite trend displays extreme price (BuS/BrS) or time (BuST/BrST) cycles. Cycle extremes are readings above 2 standard deviations. Palladium's monthly impulse, for example, is showing growing price extension as it matures. The monthly price (BuS) and time (BuST) cycles are 0.3 and -0.3 and climbing. Readings above 0 define cycles above their historical means. Above 1 are uncommon, and 2 are extremely rare. Profit-taking begins and intensifies with readings above 1 and 2.
Disciplined traders can use the Flip to escalate or establish the core position as long as the composite trend's mean cycle is Mid or Early cycle. Early cycles, setups with room to run in terms of price and time, are always the best. Mid or Late cycle designations delay the full core position until a viable Reset materializes (see Alignment & Energy - Opportunities with Primary Trend). Viable Resets are usually recognized as Early cycle alignments with complimentary energy builds that support direction.
The computer alerts subscribers of Flips by an F code in columns B-C and green highlighted rows in column D. Coffee's Flip was recorded at the end of December and shows F code and green highlight (see Coffee's Daily Impulse). Primary trend flips can be profitable, so the drive to chase it immediately will be high. Chasing breakouts, however, can be risky if the daily, weekly, or composite trend cycles are extended. Coffee's daily BuS = 2.6 and BuST = 3.59 (bolded red font) define statistically significant price and time concentration. This combination urges the disciplined trader to delay the core position until the next viable Reset (see Phase 3 - Alignment & Energy, Opportunities within the Primary Trend below).
Coffee's Daily & Weekly Impulse Statistics
Phase 3 - Alignment & Energy, Opportunities within the Primary Trend or RESET
Adjustments to the core position can be made during a composite trend Reset(R). Resets, the re-alignment of the daily, weekly, and monthly trends, are common observations within long-lasting primary trends. Short trends offer fewer resets. Resets represent the driving force behind cause building (consolidation) as defined by the Cycle of Accumulation and Distribution.
Resets can escalate or create the core position if the composite trend cycle is designated Early. Sigma (σ), the composite trend's cycle mean, defines Early, Mid, and Late (see Sigma below). As a rule, Mid to Late cycle designations delay the escalation or establishment of the core position until the next viable RESET (see Alignment & Energy - Opportunities with Primary Trend).
S&P Defense Index (ITA)'s composite trend, for example, re-entered Triple Up (Trip▲), or an alignment Reset within a primary uptrend. The Reset is recognized by the R code in columns B-C and yellow highlight in column D. The Reset represents an opportunity to escalate to full core position if a complimentary energy build precedes or accompanies it. Time and the size of the energy build during the consolidation are important. A quick decline lacking a sizeable complimentary energy build, for instance, has a low probability of yielding a viable Reset.
S&P Defense Index Daily, Weekly, Monthly Impulse
The core position can also be reduced during expansions. Expansions are byproducts of rallies or declines within the daily trend. Expansions often generate extended price (BuS/BrS) and/or time (BuST/BrST) cycles within the daily trend. Extended cycles are less frequent in the weekly and monthly trends. The computer compares the daily, weekly, and monthly impulses against a large historical database. If the current alignment exceeds the historical mean cycle, either in terms of price and/or time, BuS/BrS and BuST/BrST climb above 0. 0 defines the mean cycle. The higher BuS/BrS and BuST/BrST climb, the greater the probability that the current impulse will end and reverse. Even powerful and highly profitable alignments slow, pause, or reverse unexpectedly when price and time cycles rise above 2. The Evolution of the Trade does not permit chasing "hot" rallies or declines for this reason.
Bullish and bearish energy builds also help the disciplined trader recognize profit-taking and escalation points within the primary trend. Blocking domes (bearish energy builds) and supporting cups (bullish energy builds) often materialize against the primary trend. These builds slow expansion and create compression as the build is released (dissipated) over time. Disciplined traders use energy builds to better understand price behavior and trade around the core position. Energy builds against the primary trend are common during the Alignment & Energy phase. The size and frequency of the energy builds influences the onset of Primary Trend Decline phase.
Pro and Pub Indices are also used by traders to reveal opportunities for profit-taking and/or return to full exposure. Professional buying or selling ahead of price, setups creating bullish or bearish divergences, are subtle hints of continuation or a primary trend reversal.
Evolution of the trade doesn't always transition from Alignment & Energy to Primary Trend Decline. Sometimes the primary trend enters consolidation or Flips before Price or Time reaches its cyclical mean, or generates extended readings. A monthly alignment is considered above its cyclical means when BuS/BrS or BuST/BrST rise above 0.
Column D helps to manage the Alignment & Energy Phase.
S&P Defense Index
A. Market = S&P Defense Index (ITA)
B. Composite Trend = Trip ▲. Trip ▲, Triple Up Alignment of the daily, weekly, and monthly impulses, is a powerful setup. Alignment can be Triple or Double (Daily & Monthly). Computer will leave the composite trend blank if there's no alignment.
C. Cycle = Early. Cycles can be Early, Mid, or Late. Early is the best as it leaves the most time for a profit to materialize during Triple or Double alignments.
D. Sigma (σ) = -0.49. Sigma is the composite trend's mean cycle score. Traders are looking for the lowest negative number possible. These numbers can be compared against other markets as a means of finding the best opportunities. The computer uses σ to define early (σ < 0), mid, and late cycle trends. Defense stocks (ITA) σ = -0.49, so the current triple up impulse, 1 day old, is defined as early cycle.
E. T | (x̅-T) = 1|24 define Triple Up impulse as 1 day old (BuT) and 24 days to its cyclical mean.
Phase 4 - Primary Trend Decline
The core position is not a forever buy-and-hold investment. Primary trends can accelerate too fast, or last too long. Just as the brightest stars burnout and collapse on themselves faster than dimer ones, so do accelerating trends. Monthly BuST/BrST > 1 defines primary trend burnout. Readings above 2 are extremely rare and should be sold. The core position is never held after the primary trend flips in the opposite direction.
Subscribers see the Primary Trend Decline as pdt1 and pdt2 in columns B-C and red highlights in column D. Pdt1, early stage primary trend decline, is triggered when the monthly BuST/BrST > 0.5. Pdt2, primary trend decline, is triggered when they climb above 1. The computer highlight these markets red in column D. Pdt2 also changes the font color of the monthly trend count (BuT/BrT) to red.
For example, sugar's primary trend has entered Primary Trend Decline. Primary Trend Decline is recognized by pdt2 code in columns B-C and the red highlight in column D. This combination tells the disciplined traders that sugar's monthly down impulse is getting old. Old trends shift the core position (short) to liquidation.
Sugar's Daily, Weekly, Monthly Impulse
Phases 1, 2, 3, and 4 describe the evolution of a trade using the Matrix.
Diffusion Index (DI)
The leverage columns define the energy profile or builds for certain markets in the Matrix. Only markets listed on futures & options exchanges have WA, DI, and DI2 readings.
Columns taken from the Trends tab of the Matrix shows how subscribers see WA, DI, and DI2. Click DI2 hyperlink to view three statistics within a time series.
WA is the weighted average flow of open interest or force behind price. WA > 80% defines a hot market with increasing participation. WA < 20% defines a quiet market with decreasing participation. This is a common observation before a trend flips.
Diffusion Index (DI), the distribution and movement of money within the futures and options, represents energy available to support or impede the primary and composite trends. Readings above and below 60% and -60% are statically significant bullish and bearish energy builds. Extreme readings, observations above and below 80% and -80%, are high energy builds.
DI readings are weekly snapshots of energy behind the trend. Individual DI readings tend to follow general trends and cycles, but they can be volatile from week to week. DI2, the longer term trend of DI, attempts to smooth out the volatility. The DI2 trend helps the disciplined trader define the power (strength and duration) of the energy build. A combination of DI = -60% and DI2 = -30%, for example, defines a stronger bearish energy build than DI = -60% and DI2 = -5%. While each observation defines the same energy snapshot, the former trend represents a stronger and longer build.
Cocoa's DI and DI2 oscillate between bullish and bearish energy builds. Bullish and bearish energy builds are noted by green cups and red domes. Bullish and bearish energy builds Flip primary trends (phase 2) and fuel composite trend Resets (phase 3).
Cocoa's DI chart
Price is the final arbiter of investment decision-making. Expectations of falling prices warrant only conservative bets until confirmed by price. This makes defining the trend, a function of price, time, the cycle of accumulation and distribution, and energy important aspects of Evolution of the Trade.
Price's Trend which often flows against energy is defined by price oscillators. The intermediate-term trend oscillator (ITCO) and long-term trend oscillator (LTCO) define this trend. Positive trend oscillators, for example, define an up impulses, while negative oscillators define a down impulses.
Volatility bandwidth (BW) measures volatility within the trend.
Compression (↓COM) , a sharp reduction in volatility, is defined by a sharp decrease in BW. Periods of high compression (low volatility) precede periods of increasing volatility. Investors use compression to recognize the potential for price acceleration and expansion. Acceleration can boost the reward (profit) to risk (loss) profile of trades through better timing and risk management. Compression exists across multiple time frames. The Matrix focuses on compression within the composite trend.
Expansion (↑EXP), a sharp increase in volatility, is defined by a sharp increase in BW. Periods of high expansion (high volatility) precede periods of decreasing volatility. Investors use expansion to recognize the potential price deceleration and compression. Deceleration can boost the reward (profit) to risk (loss) profile of trades through better timing and risk management. Expansion exists across multiple time frames. The Matrix focuses on expansion within the composite trend.
Volume often leads price. This leadership tendency makes the study of volume an important aspect of investment discipline.
Volume's Trend which often leads price is defined by Volume oscillators. The intermediate-term trend oscillator (ITREV) and long-term trend oscillator (LTREV) define this trend. Positive trend oscillators, for example, define an up impulse and BEAR trend, while negative oscillators define a down impulse and BULL trend. BULLXO and BEARXO, subsets of BULL and BEAR trends, define impulse transitions.
Volatility bandwidth (BW) measures volatility of the trend.
Compression (COMP) , a sharp reduction in volatility illustrated by BW closing below 25%, often leads periods of increasing volatility. Traders use compression to recognize the potential for price acceleration and expansion. Acceleration can boost the reward (profit) to risk (loss) profile of trades through better timing and risk management.
Expansion (EXP), a sharp increase in volatility illustrated by BW closing above 50%, often leads periods of decreasing volatility (chart 1). Traders use expansion to recognize the potential price deceleration and compression. Deceleration can boost the reward (profit) to risk (loss) profile of trades through better timing and risk management.
Trend (Price and Volume Alignment)
An aligned trend materializes when price and volume oscillators agree. Up impulses in price and volume generate upside alignment, while down impulses generate downside alignment. Upside and downside alignment increase the probability of rallies and declines, respectively. The Trend column defines the trend as Up, Down, or Consolidation. Breakout (BO) denotes fresh upside or downside alignment. Dateo, Po, and % columns record the date, price, and annualized return of the aligned trend.
Bu(%), Max, Max*, Min, Min*, BuS, BuT, and BuST record the average impulse, maximum, highest maximum, and minimum and highest minimum percentage return, the normalized average return, time count (days, weeks, or months), and normalized time of bullish alignment. Traders often withdrawal their initial investments when BuS and/or BuST exceed 1 or 2; BuS and BuST are risk management tools for the bulls. Semiconductors (SOXX), for example, displays a upside alignment since 8/8/2016. Bullish alignment columns define 43% annualized return and aging trend. BuST = 2.5 defines alignment that's extended far past its cycle mean.
Br(%), Max, Max*, Min, Min*, BrS, BrT, and BrST record the average impulse, maximum, highest maximum, and minimum and highest minimum percentage return, the normalized average return, time count (days, weeks, or months), and normalized time of bearish alignment. Traders often withdrawal their initial investments when BrS and/or BrST exceed 1 or 2; BrS and BrST are risk management tools for the bears. The VIX (VXX), for example, displays a downside alignment since 3/21/2016. Bearish alignment columns define 276% annualized return and aging trend. BrST = 2.4 defines alignment that's extended well past its cycle mean. This suggests vulnerability to the stock rally.
The cycle of TIME, a comparisons of upside or downside alignment against all previous impulses in the form of Z-Scores, adjusts the risk of the trade. BuST readings above 1.96, for example, suggests that the impulse is longer than 95% of all past observations. Traders buying or selling when BuST or BrST climbs 2 are betting on the greater fool theory, a poor long-term trading/investment strategy.
Alignment of Bitcoin ($GBTC) since 2011
Professional and Public Indices (ProPubIndex)
Pro and Public Index trends, an important addition to the Matrix, provide an alternate description of the trend. ProIndex and PubIndex charts display Price, ProIndex, and PubIndex. These trends help subscribers define participation behind price and better understand who's driving the trend? The logic is simple. Price can be driven by professional and/or public participation. Trends supported by the pros, confirmed or lead by the ProIndex, are durable, while public ones are less durable. Bullish or bearish divergences of price and the ProIndex suggest vulnerability within the trend. The longer the divergence exits, the greater the vulnerability of the trend.
The Biotechnology shares, for example, made a high in 2018. XBI's ProIndex which traced out a series of lower highs as early as 2017 failed to confirm the 2018 high. The negative divergence suggested vulnerability of the uptrend in 2018. Few investors other than followers of the Pro and Pub Indices recognized the trouble and reduced risk when the primary trend flipped.
A similar negative divergence is beginning to emerge in late 2020 and early 2021. If the ProIndex fails to rally to new relative highs, price will grow increasingly vulnerable to return to the price in which the divergence first emerged.
Corn's long term ProIndex, a trend difficult to contain within a single chart, reveals the importance of professional leadership. All of corn's major upside rips were accompanied by increasing participation from professionals. Corn’s ProIndex nearly always established relative new highs during sharp rallies. The key observation here is that direction rather than magnitude of the ProIndex supports or confirms price. If the ProIndex is making new relative highs, the pros are supporting the rally. Price tends to accelerate when the pros are supporting the rally.
Corn often consolidates, corrects, or enters cause building in the Cycle of Accumulation and Distribution when professionals withdraw. Apply this observation to all markets in the Matrix.
Corn's Long Term ProIndex
US Stock Sentiment
The old American idiom of a day late and dollar short is an phrase easily applied to majority's ability to time (buy or sell) US stocks. The majority, influenced more by instinctual behavioral tendency of the individual to seek acceptance of an emotionally-driven crowd than act independently in the minority, views rising and falling stocks prices as bullish and bearish. This tendency that drives them chase when probabilities favor fading relegates the majority as the consistent bagholders of history's panics and trend changes.
The Sentiment Model, a standalone trading tool used by investors to outperform the buy-and-hold investment strategy, produces the following observations: (1) bull and bear phases have produced average annualized returns of 26% and 61% and 32% and -7% since 1992 and 2017; these returns significantly outperform buy-and-hold (B&H) average annualized returns of 8% and 7% over the same periods, and (2) stock returns are clearly not random as taught by popular academic theories. Sentiment Model data is found on line 52-54 of the Matrix.
The Matrix tracks sentiment in detail through the sentiment model and its components. The Long Term Sentiment Oscillator (LTSO), a component of the sentiment model, provides direction of sentiment and defines the sentiment phase. LTSO > 0 and LTSO < 0 define bull and bear phases, respectively.
Weighted Average Sentiment, another component of the sentiment model, is a standardized measure of sentiment concentration. Sentiment concentration (WASo and WAS1) define concentration from "hot" optimism to "cold" pessimism. WASo > 1 is hot, while WASo < -1 is cold.
The US Stock Market Cap section displays relative money flows between stock indices and across asset classes. The first section is a relative price performance of major stock indices; the computer describes the investment backdrop based on which index is leading. A US stock rally, for example, lead by the Nasdaq 100 describes a speculative rally based on largely domestic money flows.
The Precious Metals, US Bonds, US Stock Section defines helps investors define the overall risk structure of the market. Risk profile is defined as risk-taking (risk-on) or risk-aversion (risk-off) for precious metals, the economy, or bonds/stock money flows.
Gold to Silver Ratio
The gold to silver ratio (GSR), a relative money flow measure that often leads the price, defines risk appetite not only for precious metals but also the financial system. A rising and falling GSR trend oscillator suggests risk-aversion and risk-taking towards precious metals, respectively. A back drop of risk-taking anticipates and/or confirms up impulses in gold. A backdrop of risk-aversion, on the other hand, anticipates and/or confirms down impulses.
Gold and silver's impulses are highly correlated. This means they move together with varying amplitude expect for periods of extreme social, political, or economic stress.
Junior to Majors Mining Shares Ratio
The junior to major mining shares ratio (JMR), a relative money flow measure that often leads price, defines risk appetite for precious metals. A rising and falling JMR trend oscillator suggests risk-taking and risk-aversion towards precious metals, respectively. A back drop of risk-taking anticipates and/or confirms up impulses in gold. A backdrop of risk-aversion, on the other hand, anticipates and/or confirms down impulses.
Precious Metals Composite (PMC)
The Precious Metals Composite defines the risk profile of all the precious metals money flows. A bull phase is bullish for gold & silver, while a bear phase is bearish.
Retail Stocks to S&P 500 Ratio
The retail stocks to S&P 500 ratio (XRT), a relative money flow measure that leads the economic activity, represent a proxy for marginal economic growth within the United States. Future economic growth is expected when the retail stock index leads the broader market (chart). Future economic weakness is expected when it lags. Retail stocks often lead economic activity since personal consumption expenditures accounts for nearly 70% of US GDP.
Junk To High Grade Bond Ratio
The junk to high-grade bond ratio (JNK), a relative money flow measure that also leads economic activity, represents a proxy for marginal economic growth within the United States. Future economic growth is expected when risky junk bonds lead their high-grade counterparts (chart). Future economic weakness is expected when they lag.
S&P 500 To High Grade Bond Ratio
The S&P 500 to high-grade bond ratio (JNK), a relative money flow measure that also leads economic activity, represents a proxy for marginal economic growth within the United States. Future economic growth is expected when risky stocks lead high-grade corporate bonds (chart). Future economic weakness is expected when they lag.
US VIX Model
The VIX Model, a standalone trading tool used by investors to outperform the buy-and-hold investment strategy, has produced bull and bear phases average annualized returns of 89% and 0% since 2009. Buy and hold (B&H) has averaged 16% over the same period. The VIX model produces fewer changes of phases than the sentiment model.
Long Term Cycle
Direction and concentration define trend stability for stocks, bonds, commodities, etc. LTCO defines the direction of the primary trend. C1, C2, C3, and C4 define the short-, intermediate-, long-, and very long-term cycle concentration, a measure of stability within the secondary and primary trend.
Buying and selling panics have existed in the past. We can use cycle concentrations and direction (alignment) to timing current impulses within past cycles. Long term cycles, a table updated daily in the Matrix for subscribers, defines cycle concentrations of the secondary and primary trend. The computer frames cyclical concentration against the primary trend (up or down) as a means of defining trend instability. Trend instability generally materializes ahead of secondary and primary trend reversals.
Long Term Cycles
A large number of investors are taught to believe that the Fed is the controller or maestro financial and economic world. While history shows us (over and over) that it’s not, the majority stands by this belief until failed expectations driven by the invisible hand inflicts losses and pain or 'teaches' the incoming generations. This seemingly perpetual cycle of failed expectations and substantial losses, a byproduct of failed economic theories and lousy education, is big reason why the public remains a consistent loser and bagholders of trend transitions in the investment world. Understanding of the real economy, invisible hand, cycle concentrations and trend directions helps subscribers separate themselves from the majority and their tendency to become the bagholders of financial history.
Timing A Correction/Crash in US Stocks
Trends to Watch in the Matrix for timing a correction or worse in US Stocks (check the boxes):
1. Sentiment Oscillator LTSO
LTSO falls below 0, or shows cycle extension (Line 53 Trends tab of Matrix).
2. VIX Model - MOST IMPORTANT!
VIX Models LTCO falls below 0, or shows cycle extension (Line 58 Trends tab of Matrix).
3. Sentiment & VIX Model Direction (LTSO & LTCO)
The direction box reports Consolidation or Bear (Line 55 Trends tab of Matrix)
4. Composite Equity DI (energy build) - IMPORTANT
The composite equity DI often falls below -40% before declines (Line 61 Trends tab of the Matrix under Comps).
Composite Equity DI
5. S&P and VIX or VIX Term Structure Correlations
Correlations go from Trending to Decoupling (Line 60-63 Trends tab of Matrix)
6. The US Treasury to S&P Ratio LTCO
LTCO climbs above 0 (Line 83 Trends tab of Matrix).
7. The Long Term Dividend Yield Cycles
(C1, C2, C3, and C4) fall below -1.96 (Line 113 Trends tab of Matrix)
8. The Long Term Seasonal Monthly Trends
Seasonal cycles are bearish (Line 136 Trend tab of Matrix)
9. The Long Term Flow of Funds Trends
Are Flow of Funds stocks concentrations near all-time highs? (Line 136 Trend tab of Matrix)