Last week: "Bottom line - bearish for now with SPY, DIA and VTI Q4P rejections, IWM Q4P break and QQQ OctP break. A bearish scenario would be lower to see SPY, DIA and VTI Q4S1s, a nice pullback, making the trapped bulls squirm, but still with the possibility of comeback. A more bullish scenario would be QQQ back above OctP and IWM back above Q4P as VIX drops back under its Q4P as well. Due to the long term charts and trapped bulls, recent sentiment extreme and timing I'm thinking the more bearish version."
Result was my bias off - QQQ back above OctP and IWM managed to barely recovery Q4P on Friday. VIX dropped back under all pivots as well. But SPY, DIA and VTI remain under Q4Ps so mixed conditions persist.
Sum
USA leader Tech is strong above all pivots, and VIX / XIV saying all clear. The weaker indexes SPY, DIA and VTI are holding lows and building positive divergence. Therefore, I think some bounce attempt is the next move. Even if SPY, DIA and VTI can clear Q4Ps - which would be a bullish development, basically taking away the Q4S1 targets for now - I still expect upside limited to OctPs.
Safe havens TLT and GLD also suggest some bounce, but I don't think it will get very far.
The elephant in the room is again the $USD. This has been the best performing asset class (other than TLT, GLD and GDX shorts) in Q4 this far, and all charts look fantastic. As Jeffrey Gundlach notes, currency trends tend to persist so let's consider the consequences of a near term move up to 99 and eventual breakout above 100: Bearish GLD and likely oil at some point, cap on USA upside especially INDU, but better for domestic small caps IWM; and popular EEM stocks increased risk of drop.
Positioning
Recent recommendations have been to buy and/or hold positions in leaders:
QQQ and semi-conductors (any summer buy on biotechs had to lock in gains)
Some financial indexes/ETFs above all pivots (not all) but XLF held Q4P exact on low and back above all pivots
XIV pointed out as strong in list per 10/8 and produced perfect buy setup 10/17-18
Global stocks especially EWZ Brazil (I haven't been mentioning this as much as should have and will try to remedy), EEM Emerging markts, FXI China, PIN India, all of which held Q4P exact on 10/13 low when 3 of 5 USA mains were below their Q4Ps
Oil per move in late September and early October per 10/1 Total market view
Avoided TLT or GLD, or short per 10/1 Total market view
$USD long if playing currencies or another way is to think GLD/GDX short per weakness idea emphasized in 10/1 Total market view and long term charts
Most recently per 10/8 Total market view, "Maintain longs on the leaders but lighten up if Q4Ps break on SPY, DIA and VTI, or use those levels as hedge areas if they turn into resistance."
So this means long tech, financials, XIV maybe, global stocks, oil, $USD or short GLD/GDX, and hedged with DIA shorts. If USA mains recapture Q4Ps then hedges based on those levels come off, but at the same time think better to be soon taking some profits on global indexes and/or oil due to $USD strength. On TLT and GLD, lows look decent enough to have already partially covered shorts but I will pass on a TLT long idea if more USA mains recover Q4Ps.
Bottom line
Though the leader has held and VIX/XIV, which tend to be on the right side of the market, say buy stocks, I am still in upside limited camp due to: strengthening $USD, fundamentals per Citigroup Economic Surprise index, daily 50 moving average with falling slope on SPY, DIA, IWM and VTI. Stock trading range likely to continue, even if stocks bounce. If Q4Ps fail to recover then that is more bearish and we can still watch for Q4S1s. But shifting my bias to some limited bounce; let's say guess at this point is buy the rumor sell the news into the election.
Pivots
USA main indexes - Tech set, 2016 second half leader, back above all pivots is bullish. Small caps RUT/IWM trying to hold Q4P as well. But SPY, DIA and NYA/VTI below Q4Ps and OctPs. So mixed conditions - not purely bullish due to 4 of 5 mains below Q4Ps, but one cannot be too bearish when market leader is above all pivots.
Safe havens - Pivots and other technicals on TLT and GLD suggest bounce, but I don't think it will get very far. VIX and XIV both all clear for USA stock indexes, and these tend to be on the right side of the market.
Global & other - Interestingly, both $USD up and $CL up in October & Q4 so far. Of the two, $USD in stronger position so the oil move may fade. Several global indexes ETFs did better than USA mains on recent lows: ACWI stronger than NYA/VTI, EEM all above Q4P and back above OctP so all pivots from 10/18 on, FXI also held Q4P on low, RSX one day below Q4P then recovery, EWZ 2016 market leader soaring above everything and above all pivots from 9/27. So global stocks have been the better pullback buy, but $USD strength would likely limit upside.
Other technicals
Near term positive divergence building on SPY, DIA and VTI recent lows as written up here makes bounce attempt more likely as next move. At the same time, falling 50MAs and OctPs, as well as $USD move, mean upside still likely limited for USA stocks especially INDU/DIA.
Valuation & fundamentals
More headwind than tailwind. Citigroup Economic Surprise Index taking a sharp dive back into clear negative territory. This helps limit upside in stocks, even if it stalls the rate hike chatter, and may help a short term bounce in bonds (drop in rates).
Sentiment
No current sentiment extremes. Crowd more bearish than bullish at this point however, which will probably support some bounce.
Timing
For October, 2 dates/windows published since end of September:
10/9 - that's Sunday so let's say 10/7-10
10/19
Both have turned into highs, although last week's guess at 10/19 low was off.
I am going to add 10/27 as a minor date for October, more likely to show in currencies. I will list dates for November next week. See this post for a review of timing dates since I started including this part of my work on this site.