Guest Post: Breath Divergence—Signaling the End of a Bull Market? By Frank Roellinger

Much has been written since the election about the stock market’s future.  I have long been convinced that certain hard, cold measures of the market are of far more value in estimating the market’s future than qualitative speculation based on political or economic developments.  The most important consideration for a long-term investor arguably is the likelihood of a severe bear market in the near future.  My approach, which I describe in The Modified Davis Method  has revealed some facts that I think have definite value in that regard.

The most important harbinger of danger in the market that I have found is the behavior of the NYSE daily cumulative advance-decline line relative to the S&P 500.  In the early stages of a bull market, both advance dramatically.  Corrections occur along the way, and for a time the recoveries are strong enough to propel both to successive new highs. However, eventually the smaller stocks begin to falter, and the S&P makes a new high while the cumulative a-d line does not.  This phenomenon, which I call “breadth divergence”, has occurred prior to the end of virtually every bull market since 1929, and there is no reason to think that it will be any different this time.

My method doesn’t rely just on breath divergence.  It takes other factors going red before I trigger a short trade.

Read moreGuest Post: Breath Divergence—Signaling the End of a Bull Market? By Frank Roellinger

Trading Low Volume Exchange Traded Products   

Many of the 1600+ Exchange Traded Products (ETPs) on the market are low volume, low asset offerings that either implement failed strategies or have bigger, higher volume competitors.  However, some low volume ETPs offer unique opportunities you won’t want to wait for. I’ve organized the special handling required for low volume funds into these categories: Alternatives Before you buy When you buy While you’re holding …

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Evaluating Liquidity of Low Volume Exchange Traded Funds 

It’s disconcerting when the Exchange Traded Fund (ETF) you’re interested in has low trading volumes.  Days can go by with no volume at all.  If it was a small cap stock you wouldn’t consider buying it.  But low volume in itself shouldn’t prevent you from considering an ETF—some have the liquidity of a large-cap stock.   ETF Liquidity Unlike stocks, ETFs have two levels of …

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How Does VXX’s Daily Roll Work?

All volatility Exchange Traded Products (ETPs) use indexes that track a mix of two or more months of the CBOE’s VIX Futures.  Calculating this mix is not trivial and has resulted in a lot of bleary eyes—including my own.  My intent with this post is to help you understand, and if you desire to accurately compute the key indexes used in VXX and other short …

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Simulating Volatility ETP Open and Intraday High / Low Values

Previously I’ve done simulations, based on VIX futures, of volatility Exchange Traded Products (ETPs) back to 2004.  In these simulations, I only generated the closing values, but since then I’ve had requests for open/high / low (OHL) values.  I’ve extended my backtests to generate ETP opening and intraday highs and lows for many of the short and medium term volatility funds—specifically VXX, VIXY, TVIX, UVXY, …

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