The Risk On Trade Below is the relative strength chart of the Russell 2000 (IWM)/S&P500(SPY). An upward movement connotes relative outperformance of the IWM, while the opposite equals underperformance. Important notes:

• The trend outlook (predictive analytics) is improving on the daily time frame
• Immediate resistance is now turning up, away from the rising ratio (bullish)
• The ratio is not yet extremely extended (overbought) on either time frame
• There is an alignment of resistance-based signals against multi time framed resistance

Summary, the IWM is strong and experiencing healthy developments, but is close to extended. I would expect a short pause of outperformance (not absolute performance) and then continuation of the trend. This is, however, dependant on positive news coming from euro-land. This level is important to watch. Currently it is acting as resistance, but once crossed it will then serve as support.

The Risk On Trade, Part II Below is the relative strength chart of the iShares Emerging Markets ETF (EEM)/S&P500(SPY). An upward movement connotes relative outperformance of the EEM, while the opposite equals underperformance. The EEM is in a similar boat to the IWM. Important notes:

• The trend outlook (predictive analytics) is improving on the daily time frame
• Immediate resistance is now turning up on the daily, away from the rising ratio (bullish)
• The ratio is not yet extremely extended (oversold) on either time frame
• Additionally, there is still room overhead with multi time framed resistance at 0.32
• When High Probability/Quantitative Technical Analysis breaks, it is still very useful information (usually occuring at trend changes)

Risk Premium Below is the S&P500 Volatility Index (VIX). Vols have been coming down since the euro crisis part II hit a head beginning this summer. Since then, volatility has been steadily dissipating. The trend outlook has been negative since mid-October 2011 and has not bounced like this summer as many have suspected. Here are the take-aways:

• The trend outlook has been negative since mid-October 2011.
• Volatility-based support has been stair-stepping lower and continues to do so
• A clearly defined multi time framed range of support/resistance has developed (24-18 and 18-15)
• The bounces have thus far been buying opportunities (and that has been a main motivation for our mostly long positions)
• The 195min chart (1/2day) is nearing extremely overbought
• The VIX seems as if it has a date with 15-16, as odds are pointing to its favor

Short-Term Volatility (VXX)  This short-term time frame snap shot shows what has been happing to volatility. In short, it has been getting sold aggressively. Through this tradable instrument, we are able to quant up transactional volume along with our volatility work to capture footprints of buying and selling pressure.

S&P500 Index (SPX) The odds are lining up that the S&P500 will make another move to the upside. The take-aways:

• The trend outlook is positive on both time frames
• The SPX is extremely oversold intraday and nearing extremely oversold on the daily time frame
• Projected resistance has reset/lifted higher to 1340 on the intraday chart
• There is overlapping, multi time framed support just over 1300

The Russell 2000 Index (RTY) The odds are lining up that the Russell 2000 Index will contend with selling pressure to make another move to the upside. Currently testing a multi time framed level, as well as the relative strength chart above, this will be important to take. Once this level is taken, it will then serve as support. The take-aways:

• The trend outlook is positive on both time frames
• The RTY continues to take out intraday resistance levels
• The RTY is not yet extremely overbought nor oversold on either time frame
• The RTY has arrived at projected resistance near the 800 level. If this level is taken, it will be extremely bullish because selling pressure from those who bought just ahead of this summer’s Greek crisis will be overcome
• There is overlapping, multi time framed support between 780-760
• Immediate support (N Bands are rising on both time frames and immediate resistance is rising on the daily (bullish)

The Dollar Slide When technicals fail, they still provide equally important information. The dollar just did that. The take-aways are:

• The trend outlook is still positive on both time frames
• Trend compensated momentum is neither extremely overbought nor oversold
• A USD Index looks to be setting up in a similar way (volatility-wise) as mid-late-October
  • It broke long setups and support,
  • then fell to a new level of support which recently reset higher
  • 78.50-79.50 is multi time framed support
  • If this MTF level is broken, you could see significant more downside, to 72-71 which is the next level of MTF support
    • This is interesting because it would have direct effects on many other markets, including ours

Gold I initially wrote about the high probability bounce in gold to end a precipitous fall here Gold’s Connecting Flight, It Just Landed Since then, it has rallied more than 10% and has now reached a significant multi time framed level of resistance. Significant volume is also confirming large players are acting in concert at this level. This will be an important level to watch. The take-aways are:

• The trend outlook is mixed and choppy
• Multi time framed resistance is being tested
  • which will be very bullish and
  • serve as support if broken.
  • Trend compensated momentum is neither extremely overbought nor oversold
  • If this MTF level holds, you could see significant more downside
    • First down to 1600 which is volatility-based support (daily)
    • Then down to 1500 which is transactional and volatility based support (weekly)
    • This is interesting because it would have direct effects on many other markets, including ours, just as in the case of the USD scenario above

Oil Oil is exactly in the middle of a well defined range of volatility-based support and resistance. The take-aways are:

• The trend outlook is still positive on both time frames
• Trend compensated momentum is neither extremely overbought nor oversold
• Support and resistance
• Oil has been trapped under weekly volatility-based resistance
• The daily chart shows a range that is book shelved by compression (strong support and resistance)
• MTF Support is 105-110
• MTF Resistance is 85-88
• There is significant news risk in this commodity and knowing extreme volatility-based levels in advance can be “extremely” handy

10Year Yields In the middle of a tightening daily range. The take-aways are:

• The trend outlook is positive in the near term
• Trend compensated momentum is approaching extremely oversold on the daily
• Support and resistance
  • Continues to develop narrow ranges clearly defined by daily volatility-based support and resistance
  • The daily chart shows a range that is was book shelved by compression (strong support and resistance)
  • There is significant news risk in this and knowing extreme volatility-based levels in advance can be “extremely” handy as in any asset class
    Looking at the following extreme signals (Es, SRs, and Ns) shows past implications of the moves that can develop