Wednesday, August 26, 2015

S&P 500: the State of CHAOS

I slightly simplified my CHAOS indicator. The idea is the same: in a rolling window we compare the whole window price channel width with the sum of daily price ranges, on chaotic market regimes price movements produce more narrow range. See the code for the CHAOS indicator at the end of the article.

Let's see what it shows for the current market situation. This last week on S&P 500 we saw a tremendous release of an energy being stored for half a year. Chaos measure went from historically very high 0.6 to historically low -0.43 in just 5 days.



What to expect now? Well, from this level more chaos should come. If you take a look at similar events, such strong downfall usually turns into volatile range movements for some time.

1987:


2011:


Charts are made in Amibroker.

Here's the CHAOS indicator code for the Amibroker:

window = 84;
average = 256;
whole = ln(HHV(H, window) / LLV(L, window));
parts = MA(ln(H/L), window);
ratio = ln(parts/whole);
Chaos = ratio - MA(ratio, average);
Plot(Chaos, "chaos", 4);

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