3 Domains To Track S&P 500 (Economy), TDI (Trifecta), And SDI (Diffusion)

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Introduction

“ I called for a Correction a week ago (on Aug 04), based upon on 1) the SDI (the S&P 11-Sector Diffusion Index) and the TDI (the Trifecta Distribution Index).

The focus of the two indices is to abstract the delicate pattern of motions, by suppressing their very important ingredient, their weight of the size of prices.”

(From “ The Contour Of The Correction: A Line To A Bear Or A Curve To A Bull?”, Aug 16, 2023)

Both the TDI and the SDI are not on the Weight (of Price) Domain. The former is on the PPO Domain, but the latter is not. The former uses the familiar PPO symbols such as “P” (plus) or “m” (minus), but the latter is a product of the “diffusion” analysis.

Third Domain

We need a third Domain, “The Diffusion Domain”, consisting 1) a neutral zone (40% – 60%), 2) a Bullish zone (Higher than 60%), and 3) a Bearish zone (Lower than 40%).

In a sense, the Diffusion Domain is a buffer zone between the fast PPO Domain and the anchored Domain Weight (of Price) Domain.

The Focus

The Details of Three Domains.

An Update of the SDI as of Aug 22, 2023

An Update of the TDI as of Aug 22, 2023

An Update of the S&P 500 Index (SPY, the Economy) as of Aug 23

To get the definition of the TDI and the SDI, please click here, and for the “Pape-And-Pencil-Only [PPO], click there.

Three Domains

“ The S&P 500 on the Weight (of Prices) Domain vs. the TDI on the PPO Domain

The Diversity between the Economy represented by the S&P 500 Index and the TDI has noticeably widened every week.

In July the economy and the S&P 500 Index were much better than most market participations believed.

I called for a Correction…, primarily depending on the TDI. The focus of the TDI is to abstract the delicate pattern of motions, by suppressing their very important ingredient, prices.

As a result, the TDI is on the PPO domain, not on the Weight (of Prices) domain. The former depicts Tides while the latter draws Waves.

We now in juncture of the straight line toward a bear market, led by Tides or a graceful contour landing a bull plateau, helped by Waves.”

(From, “The Escalated Diversity Between The Bearish Tide and The Bullish Wave”, Aug 22, 2023)

The Diffusion Domain, as the third one

Table 1. The Aug Diffusion Index of The S&P 500 11 Sectors

AUG

Jul-23

The S&P 500 !! Select Sectors

Diffusion

DATE

XLRE

XLU

XLC

XLY

XLF

XLE

XLI

XLP

XLK

XLB

XLV

#P

SDI

08/01/23

m

m

m

m

m

m

P

m

P

m

m

2

18%

08/02/23

m

m

m

m

m

P

m

P

m

m

P

3

27%

08/03/23

m

m

m

P

P

m

m

m

m

m

m

2

18%

08/04/23

m

m

m

P

m

P

m

m

m

m

m

2

18%

08/07/23

P

m

P

P

P

P

P

P

P

P

P

10

91%

08/08/23

m

P

m

m

m

P

m

m

m

m

P

3

27%

08/09/23

P

P

m

m

m

P

m

P

m

m

P

5

45%

08/10/23

m

m

P

P

P

m

m

m

P

P

m

5

45%

08/11/23

P

P

m

m

P

P

P

m

m

m

P

6

55%

08/14/23

m

m

P

P

m

m

P

m

P

P

P

6

55%

08/15/23

m

m

m

m

m

m

m

m

m

m

m

0

0%

08/16/23

m

P

m

m

m

m

m

m

m

m

m

1

9%

08/17/23

m

m

P

m

m

P

m

m

m

m

m

2

18%

08/18/23

P

P

m

m

m

P

P

P

P

m

P

7

64%

08/21/23

m

m

P

P

m

m

m

m

P

P

P

5

45%

08/22/23

P

P

m

P

m

m

m

m

m

m

m

3

27%

AVERAGE

35%

NOTE

Data Source is Yahoo Finance, Author Made Table.

Click to enlarge

The SDI was 35% as of Aug 22 (Tuesday), as shown in Table 1.

The monthly SDI of 2023 has registered as 61% in Jan, 46% in Feb, 56% in Mar, 52% in Apr, 43% in May, 59% in Jun, , ang 60% in Jul. As a result, I made a neutral zone as a range of 40% to 60%.

In Jan it was bullish as a higher score, 61%, while the lower print, 35% in Table 1 as Aug 22, was bearish.

To view the SDI from Jan 2023 to Jul 2023, please click this.

The monthly movement of the SDI was very smooth because of the feature of the “Diffusion Index” as:

“Diffusion Index

…Every day 11 SPY Sectors together make a Diffusion Index which oscillates between 0% to 100%. if all 11 sectors rose, the DI is 100%, and if all fell, DI is 0%. We have 11 sectors so we don’t have an exact 50%. SPY had 12 sectors before. Making 11 sectors is better for DI analysis in a sense.

Jun 30 [2023], DI was 100% meaning that 11 out of 11 ascended. It’s very strong move. We can buy because the following day of one good session would repeat over 50% chance. What about a surge two days in a row, well you would make your decision, and so on. The nice thing about DI is it can be used as a market indicator at the day one.”

(From “ The Paper-And-Pencil-Only (PPO) 123”, Jul 15, 2023) The PPO Domain of the TDI as of Aug 22, 2023

Table 2 Trifecta Data Aug 01 – Aug 04
DATE	SPY	DIA	QQQ	SPY	DIA	QQQ	Tp/Tm
07/31/23	457.79	355.57	383.68	*	*	*	*
08/01/23	456.48	356.20	382.79	m	P	m	S
08/02/23	450.13	352.74	374.39	m	m	m	Tm
08/03/23	448.84	351.99	373.79	m	m	m	Tm
08/04/23	446.81	350.65	372.04	m	m	m	Tm
08/07/23	450.71	354.62	375.19	P	P	P	Tp
08/08/23	448.75	353.02	372.00	m	m	m	Tm
08/09/23	445.75	351.28	367.91	m	m	m	Tm
08/10/23	445.91	351.89	368.59	P	P	P	Tp
08/11/23	445.65	353.00	366.24	m	P	m	S
08/14/23	448.11	353.21	370.35	P	P	P	Tp
08/15/23	442.89	349.61	366.42	m	m	m	Tm
08/16/23	439.64	347.77	362.54	m	m	m	Tm
08/17/23	436.29	344.55	358.58	m	m	m	Tm
08/18/23	436.50	345.12	358.13	P	P	m	D
08/21/23	439.34	344.67	363.90	P	m	P	D
08/22/23	438.15	342.96	363.38	m	m	m	Tm
NOTE
1. Tp is Trifecta for Bull, Tm is Trifecta for Bear.
2. “D” is double “P”. And “S” is Single “P”. .
3. Data Source: Yahoo Finance.
4. Author made the Table.

Click to enlarge

Table 3. The Summery of Trifecta In 2023
The Bullish (Plus) Trifecta For Bulls
2023	The No. of In A Row for multiple (1-6) Tps						TOTAL
Month	6 Tp	5 Tp	4 Tp	3 Tp	2 Tp	1 Tp	Tps
Jul			1	0	3	3	11
Aug				0	0	3	3
The Bearish (minus) Trifecta For Bears
2023	The No. of In A Row for multiple (1-6) Tms						TOTAL
Month	6 Tm	5 Tp	4 Tm	3 Tm	2 Tm	1 Tm	Tps
Jul				1	0	1	4
Aug				2	1	1	9
NOTE
1. Data Source: Yahoo Finance.
2. Tp is Trifecta for Bull.(plus)
3. Tm is Trifecta for bear.(minus)
4. D is Double: 1″m”/2″P”, and S is Single: 2″m”/1″P”.
5. Author made the Table.

Click to enlarge

As shown in Table 3, the current correction front approaches the bear cliff very promptly session by session, by printing that Tp vs Tm was 14 vs. 12,

There are only 2 points (on the PPO domain) to touch the Bear market, in addition to a Bear zone as 35% in the Diffusion Domain.

The S&P 500 Index (SPY, the Economy) as of Aug 23, 2023

Table 4: The S&P 500 Index
(Jul 28, 2023 – Aug 11, 2023)
07/28/23	4,582.23	*	*
08/01/23	4,576.73	-0.12%	*
08/02/23	4,513.39	-1.38%	*
08/03/23	4,501.89	-0.25%	*
08/04/23	4,478.03	-0.53%	-2.27%
08/07/23	4,518.44	0.90%	*
08/08/23	4,499.38	-0.42%	*
08/09/23	4,467.71	-0.70%	*
08/10/23	4,468.83	0.03%	*
08/11/23	4,464.05	-0.11%	-0.31%
08/14/23	4,489.72	0.58%	*
08/15/23	4,437.86	-1.16%	*
08/16/23	4,404.33	-0.76%	*
08/17/23	4,370.36	-0.77%	*
08/18/23	4,369.71	-0.01%	-2.11%
08/21/23	4,399.77	0.69%	*
08/22/23	4,387.55	-0.28%	*
08/23/23	4,436.01	1.10%	*
Total Drawdown			-4.70%
NOTE
Author Made Table, Data Source Is Yahoo Finance.
4. Data Source: Yahoo Finance

Click to enlarge

In the Weight (of Price) domain, as shown in Table 4, nonetheless, we are still Complacent because the Economy (the S&P 500) was down just less than 5% which was Far Above the Bear Surface (-20%). as of Aug 23.

In this week, Bulls ascent nicely +0.69% Monday (Aug 21) and a whopping +1.10% Today (Aug, 23, Wednesday). During Aug Bulls ran +0.90% on Aug 07(Monday).

The Economy

As Reported on August 22:

“Stocks had a mixed showing today in a lightly traded session.

Buy-the-dip action in the mega cap space led to the outperformance of the Nasdaq Composite (+1.6%) and helped limit losses elsewhere. The major indices had been drifting lower in the early going before bouncing off their lows around 12:00 p.m. ET with no specific news to account for the improvement.

Notably, Treasury yields, which had been rising and keeping pressure on stocks, started to pullback from their highs around the same time that the stock market hit its worst levels of the session. Ultimately, the major indices settled near their best levels of the day, which had the S&P 500 just a whisker shy of 4,400. The S&P 500 hit 4,407 at its high of the day.

The 2-yr note yield settled eight basis points higher at 4.99% after reaching 5.00% earlier. The 10-yr note yield rose nine basis points to 4.34%, which is its highest level since 2007, after hitting 4.35% earlier. The 30-yr bond yield rose eight basis points to 4.46%, hitting its highest level since 2011.

Mega cap stocks, which had already been outperforming due to buy-the-dip interest and presumably some safe haven trading, drove a lot of the late afternoon rally. The Vanguard Mega Cap Growth ETF (Vanguard Mega Cap Growth Index Fund ETF Shares (MGK) Stock Price Today, Quote & News) rose 1.5% while the Invesco S&P 500 Equal Weight ETF (Invesco S&P 500® Equal Weight ETF (RSP) Stock Price Today, Quote & News) closed flat.

Tesla (TSLA 231.28, +15.79, +7.3%) and NVIDIA (NVDA 469.67, +36.68, +8.5%) were top performers from the mega cap space. NVDA, which reports earnings after the close on Wednesday, traded up after HSBC raised its price target to $780 from $600. TSLA, meanwhile, had declined nearly 30% since its high July 19 coming into today.

S&P 500 sector performance was mixed. Information technology (+2.3%), the most heavily weighted sector in the S&P 500, outpaced the remaining ten sectors by a decent margin. Palo Alto Networks (PANW 240.81, +31.12, +14.8%), which reported better than expected results after Friday’s close, was the largest percentage gainer in the sector. The interest rate sensitive real estate sector (-0.9%) saw the largest decline in today’s session.

Some angst ahead of Fed Chair Powell’s speech Friday at the Jackson Hole Symposium also contributed to the weakness in the Treasury market today after a Wall Street Journal article by Nick Timiraos discussed why the neutral rate may need to be higher.

Festering concerns about China’s disappointing growth remained a limiting factor for stocks today. On a related note, the People’s Bank of China lowered its one-year loan prime rate by ten basis points to 3.45% while the 5-yr rate was left unchanged at 4.20% against expectations for bigger cuts.

There was no U.S. economic data of note today, but tomorrow’s calendar features the Existing Home Sales report for July (Briefing.com consensus 4.15 million; prior 4.16 million) at 10:00 a.m. ET.

Nasdaq Composite: +29.0% YTDS&P 500: +14.6% YTDS&P Midcap 400: +6.2% YTD Russell 2000: +5.4% YTD Dow Jones Industrial Average: +4.0% YTD” (source)

The Conclusion

Finely, the Economy (the S&P 500 Index), the Stock Market, and Business Cycles are well traced with the TDI, the SDI, and the S&P 500 (SPY) systematically:

The volatile TDI lead far ahead, The SDI lead steadily, and then SPY (the S&P 500 and the Economy) follow Ponderously. The three indicators are working as the inverted-lagging indicators, the leading indicators, and the coincident indicators which I have mastered in the CIBCR (Center for International Business Cycle Research) in the first half of 1980s.

The Economy and the Market, in my view, have moved towards the long-time awaited Bull Plateau step by step since the COVID Destruction [CD] in 2019 – 2020, the Global Financial Crisis [GFC], and the ensuing Great Recession [GR] in 2007 – 2008. The CD, the GFC, and the GR were three Elephantine Events.

It would take at least a couple of decades to back to the normal. Or we can never be normal. As a consequence, we must endeavor a new system and framework which I have done here, in every fields.