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Market Timer Insights

Week of October 30 - November 3, 2017


My wife and children have a full weekend planned for some fun and relaxation. First a walk up and
down Newbury Street and a visit to the Pru for some light shopping then dinner at ROW 34 to cap
off the day. Sunday were taking the kids for a drive up Route 1A along the coast to Salem and taking
a tour of the House of the Seven Gables and climb the Secret Staircase J

Fun awaits, so lets get to this weeks events in the market:

Monday: Another down Monday. We saw selling coming in on the first day of the week. The DOW
closed lower by 85 points but the MTSD Index only indicated light selling with a -1. MTVolatility
(MTVol) went to 100%. But with a -1 MTSD reading it was clear the decline had very little negative
herding and at least a pause and/or rally would follow. We changed the Signal/Trend column to a
neutral position . When that happens it typically means if youre short and following the signals
(at least for aggressive traders) then you should exit your position.

Tuesday: The DOW only climbed 28 points but the MTSD was +8 indicating strong buying. MTVol
continued to rise to 101%. But with the DOW/MTSD Ratio* at +5 it was clear the bullish herd was still
active. We changed the Signal Trend to UP.

Wednesday: The DOW was up over 130 points intra-day but closed up just 57 points. MTSD at +2 was
weak but still positive. Upon reflection we could have kept the Signal Trend to UP or changed it to
neutral however weighing heavily in the favor of negative herding was the MTVol RISING to 102%
and the MTSD/DOW Ratio at -3. So we changed the Signal/Uptrend to DOWN.

Thursday: The DOW gained 81 points but when we plugged in our data we saw a -2 MTSD which
indicates Selling on the Advance one of the most reliable signals in MT that indicates a decline
will start soon. In addition, even though the market was higher, MTVol did not drop! It held steady at
102%. Typically when you have DOW point gains 3 days in a row MTVol will decline in response that
didnt happen and instead it rose and held steady. This is a possible signal that things are not ok
with the rally. We kept the Signal/Trend DOWN.

Friday: The DOW cash index rose over 40 intra-day and closed 22 points higher but we noted that the
YM (the CME future derivative for the DOW cash index) was only up 6 points. While it does not mean
much to us in terms of our analysis, we take note of various divergences like this. Friday we saw the
MTVol rise from 102% to 105% - an increase of net 3% on a day in which the market advanced. MTVol
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is calculated on the expected price of the DOW and is extremely sensitive to actual supply/demand
imbalances and movements in the DOW. We are now just 15 percentage points away from official MT
bear market territory according to Market Timer. Severe bear herding occurs at 120%. So we kept the
Signal/Trend DOWN with the expectation that MTVol will continue to rise as it has been doing.

Weekly Wrap: One thing missing this week from MT signals was any kind of bullish or bearish herding
in the Balance of Power (BoP) columns. This indicates that there is battle going on between the
bullish and bearish crowd and no one has won - yet. The DOW rose approx. 190 points net for the
week but the MTSD was only +9 net. MTVol rose from 100% to 105% for the week, the DOW/MTSD
Ratio was -10. Those signals indicate that there is negative herding despite rising prices.

Sidetracked: Also of note, using CBOE data from 1990 (reconstructed) or January 1993 (actual data) -
present, the VIXTM is made a possible historic double bottom just under 9 on July 26th at 8.84 and
then again Friday at 8.99 please note that these are intra-day lows not closing lows.

The July reading is the lowest intra-day level for the VIXTM in its history (one other intra-day low of
note was 12/27/93 at 8.89 it did not last long). Prior to 1993 the actual calculation for the CBOE
volatility index was the VXOTM. The data around the 1987 crash indicated the VXOTM increased from
the 22 level to 172.79 intra-day on October 20th (1987) which, by our estimate, was the highest
recorded volatility index reading ever recorded.

We cant compare the current lows to that period unfortunately because of the differences in the
formulas, the instruments being measured and the complexity in the conversion. But according to the
CBOE, October (2017) was the least volatile month in the history of recorded VIXTM readings!

Based on our best estimate, the highest monthly volatility level (Oct 1987) and the lowest monthly
volatility levels (Oct 2017) for the index are EXACTLY 30 years apart. Coincidence? Do we think this
is significant or just an interesting historic fact? Time will tell.

Note: VIX and VXO are trademarks of the CBOE.

New: New this week is an update and inclusion of our Conservative Model Portfolio (CMP) and our
Aggressive Model Portfolio (AMP). Rather than publish them separately we have decided to include
both in the Market Timer Insights newsletter each week.

For those who were receiving the CMP separately, we will now include it here on a continuing basis.

Entity Clients (Investment Managers and Corporate clients) will continue to receive the daily Hedge
Model Portfolio (HMP) and daily Insights separately.





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MT Charts in Focus

MTVol (daily closes): Rising since 9/20. We reached 105% on Friday. When/if it reaches 110% we will
be in official bear herding territory.

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DOW Cycle Points Gained /-Lost: We use a rolling SUM of price changes (not a moving average) on
the DOW to measure resistance to further declines or advances. This chart measures a 27 day rolling
sum. We look for ease of movement as one measure in our analysis. Observations: Most gains from
Jan 2016 to present have seen relatively minor resistance to price advances. Starting on approx. Sept
8th the noise in price rises are becoming more pronounced. While it does not eliminate the potential
for further price gains, it does show that advancing prices are facing stiffer resistance.

The chart below shows the divergence between a shorter price cycle (21 day SUM) verses the longer
27 day cycle SUM:

NOTE: The blue line is the shorter 21 day SUM, the red line the longer 27 day SUM.


Since we have been using price cycles, the 21 day SUM almost always leads the 27 day SUM. In this
case the 21 day price cycle has already started to turn lower, indicating that the 27 day sum will
follow.

Model Portfolio (Aggressive)

ENTRY DATE EXIT DATE INDEX POSITION Pts Profit (+gain/-loss)
11/01/17 -- $DJI SHORT (-104.18)
10/31/17 11/01/17 $DJI LONG +86.27
10/24/17 10/31/17 $DJI SHORT +93.02

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Model Portfolio (Conservative)

ENTRY DATE EXIT DATE INDEX POSITION Pts Profit (+gain/-loss)
07/27/15 08/24/15 $DJI / $SPX SHORT +1902.09
02/16/16 05/20/16 $DJI / $SPX LONG +1330.31
06/13/16 06/27/16 $DJI / $SPX SHORT + 592.24
11/22/16 03/16/17 $DJI / $SPX LONG +1977.31
04/25/17 11/2/17 $DJI / $SPX LONG +2746.29


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What is the DOW/MTSD Ratio?
Positive and negative notations in the NOTES Column:

There is a relationship between the DOW change and the MTSD Index. We take the DOW Change and
divide it by 10 (the DOW/MTSD Ratio). This is how its measured:

Example: The DOW is up 160 points.

160/10 = 16 (The DOW Ratio)

MTSD = +3.

So if we subtract the MTSD from the DOW ratio we get: 3-16 or -13

The DOW and the MT Supply /Demand Index have a relationship that should be 1:1 or better, when
its negative (-3, -5, -7 etc), when the DOW is higher, means there was too much supply in the market
and there was selling into the advance and is a negative sign for the market. When the ratio is +3, +5,
+7 etc. then its a positive sign and indicates strong buying.

When the DOW is lower and the MTSD is positive or less than the DOW Ratio it means there was
buying on the decline and is a positive sign for the market. Or when the ratio on the decline is 1:1 or
better then it indicates strong selling.

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CEO & Insights Editor: Jace Greyson | jace.greyson@strongmarket.com
Support Lead: Jill Holland | jill.holland@strongmarket.com
Entity Client Lead: Rakesh Bahl | rakesh.bahl@strongmarket.com

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