Last week: "Bottom line - We'll have new Q4Ps and OctPs on Monday, and it will be easy to see what is above all pivots, what isn't, then what holds and what breaks. While the mixed conditions still exist (SPY YR1, IWM YR1 directly overhead and VTI YR1 not far off), right now I give edge to stock bulls based on the quarterly and monthly charts, and sentiment nowhere near bullish extreme. If SPY & IWM can clear YR1s (that remains an IF) then we should see a run to NDX target area YR1 4959. Watch oil, because the last time we started to see long term strength after a big drop that was on GLD in late January."
Result: Biggest moves were TLT and GLD drops, as they both opened below Q4Ps and down from there. Stocks dropped a bit but 3 USA mains held Q4P support. YR1 still resistance for SPY and IWM. Oil up.
Sum
If you took gains or hedged longs originally from late June & early July in mid August, and then emphasized market leaders Tech (QQQ, semi-conductors, biotech), China FXI / EEM on the September pullback; recently added on oil; and avoided damage or shorted TLD and GLD as your latest move, you are doing well. [I haven't talked about EWZ Brazil or RSX Russia as much but should be, with EWZ +31% off 6/27 low and RSX +18% handily beating SPX 10% rally in same period.] Now what?
Bottom line - I want to be bullish stocks with tech and global stocks doing fine above all pivots, oil rallying, safe havens crumbling, and VIX giving the all clear without being too low. At the same time I don't like this combination: YR1s acting as resistance on 4 of 5 USA main indexes, monthly pivots acting as resistance on 3 of those, and the same 3 daily 50MAs rolling over with downward slope. Sentiment is a bit too bullish on ISEE as well. You don't have to be max long here and in fact shouldn't be with only 1 of 5 USA mains above all pivots. 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. Basically I am expecting range bound action but don't know whether stocks have energy to move back up to high areas or SPY DIA VTI Q4Ps break and we see a test of QQQ OctP or lower as the next move. If I had to pick one, given overall charts and tech leadership, I would say stock limited bounce off the SPY Q4P and then we'll see how far it gets.
Pivots
USA mains - Tech continues as leader, above all pivots. But otherwise YR1 declines on SPX set, INDU YR1 near tag in August, RUT YR1 exact at highs and now second drop from this area, and VTI decline from YR1 also underway. At the same time we are seeing red from all these yearly R1s, monthly pivots on SPY, DIA and VTI have acted as resistance. Levels to watch now SPY, DIA and VTI Q4Ps which held as support on 10/7.
Safe havens - Fast drop down to 2HP & D200MA area support but will it hold? So far safe havens TLT and GLD weaker the second half, as Tech as resumed leadership of the market. I think we could see a long term trend change in bonds, and so we could see some chop around the 2HP. Ultimately I think it will break. VIX & XIV continue to be very supportive of stocks and until they show trouble I think stay long or add back on dips.
Global & other - Oil up above OctR1 on 10/6, then a drop on Friday. Global stocks continue to be very impressive. EWZ Brazil new high of year on 10/7! RSX Russia perhaps some trouble on YR1 but above all pivots. ACWI global index mild drop off highs and near OctP, well above Q4P (so closer in look to QQQ technically). FXI China, EEM emerging markets both above all pivots despite my expectation that FXI was due to cool off.
Other technicals
It helps to have the slope of MAs on your side but which timeframe (daily, weekly, monthly, quarterly) and which MA (10, 20, 50, 100, 200)? Let's just keep it simple at the daily 50 for intermediate trends. SPY, DIA and VTI daily 50MAs have acted as resistance at recent highs and rolled over to be sloping somewhat down. I view pivots as more important and if Q4Ps hold then that is bullish, but slope of MAs makes me more cautious and contributes to upside limited base case.
I don't like the look of up/down volume either, which was weakly positive in September with a visit to negative territory mid month, and so far negative in October. It is hard to imagine a bullish volume surge with election just 4 weeks away so that means some type of range bound market. Base case remains upside limited even if we see a bounce up from Q4Ps.
Valuation and fundamentals
More headwind than tailwind.
Sentiment
3 of 4 readings no extremes, but too many daily spike highs on ISEE last week. While this crowd was correctly bullish a few days off key lows 1/26 & 2/16, it was also quite enthusiastic at highs 6/8 with 136 reading, 7/18 156 reading, 8/5 139, 8/12 136. So consider 10/3 149 and 10/5 130 as a red flag. Crowd thinking Q4 has to go up. If any Q4 was under pressure it would be this one with election and FOMC.
Timing
10/9 - that's Sunday so let's say 10/7-10
10/19
So far 10/7 low on stocks but potentially bonds as well.