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Market Lab Report - Premarket Pulse 8/28/17

Major averages finished mixed on lower volume, closing near the lower end of their trading ranges. Both the S&P 500 and NASDAQ Composite closed just under their 50-day moving averages. Given the lack of strong leadership and the pronounced number of distribution days in recent weeks, odds seem to favor a continuation of this choppy downtrend. Keep in mind that quantitative easing (QE) is at record levels thus is responsible for creating a pattern in the S&P 500 that has never been observed since it began in 1957, namely, the shallowest of floors so far this year when compared against any prior year. Singularly, the corrections in the S&P 500 have been contained to within 3% all year.

Consequently, the standard measure of volatility known as the VIX has been trading at near or at record low levels for most of the year. Meanwhile, the market pushes on a string in baby-stepping fashion to new highs thanks to QE. Gains are then reversed in often just a day on a negative news event, but instead of the markets correcting more meaningful, it's QE to the rescue which prevents any further material damage. While the Market Direction Model continues to perform well, the VIX Volatility Model (VVM) which thrives on volatility is back to the drawing board as a result of this unprecedented type of environment. I will be sharing signal changes with members so they can track its performance though I have suggested not trading the VVM while it is back in beta. It is rigorously testing out various strategies including the UVXY 620 buy signal strategy in terms of optimal entry and exit points.

  • Markets showed little concern over North Korea's latest missile tests, which took place on Saturday. Japan's government said the three short-range missiles launched by Pyongyang did not pose a threat to Japan. 

  • Bank of Japan central bank said during the Jackson Hole annual meeting last week that BoJ policy will remain very accommodative and that the second quarter growth rate of 4.0% is not sustainable. An accommodative monetary policy is typically characterized by lower interest rates which makes money cheaper for businesses to borrow. Thus, expect record levels of QE to continue.

Futures are up about 0.3% at the time of this writing.

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