Review
12/17 Total market view: "Even though initial blast off post election lasted longer than I thought, I think likely that Santa has already delivered and next move sideways or some drop. Digestion would be quite normal here. At the same time, unless there is some political or international relations shock, it is hard to imagine too much selling pressure."
Results: Indexes were fractionally higher for the week for an overall mostly sideways move.
Sum
USA main indexes have rallied to yearly resistance on cash indexes and since then about sideways for 2 weeks. This lack of selling pressure increases the chances we will see a move back to those levels or above into year end.
Bottom line
Portfolio is decently long and will return to fully long if IWM closes above its YR2 for minimal cost hedge. Plan for now is to hold the FXI short. I'd rather not return to leveraged long by chasing the market into a year end rally recently after sentiment extremes, but willing to return to 100% long on strength in this environment.
Positioning
It is often good to have some buying power near beginnings of new quarters as definitive moves often begin. Current recommendations are:
100% long USA indexes (3 IWM, 2 DIA, 3 XLF, 1 SMH, 1 QQQ)
-30% hedges & shorts, via 2 IWM hedges and 1 FXI short
70% net long
(Positioning limits 150% long and 50% short or hedge.)
See this dedicated post for details and adjustments from the past week mentioned in Daily comments. (Note: This system does not include currency, bond or commodity positions.)
Pivots
USA main indexes - Cash indexes have run into yearly resistance on SPX, NDX, INDU and RUT, but for the last 2 weeks there has been no serious selling pressure. I think it is likely that INDU will tag 20000, but YR2 is just above at 20029. Multiple USA mains above these yearly levels would be very bullish, but I think sideways is the bit more likely move.
Safe havens - VIX confirmed long and strong stocks from 11/9. XIV a bit more sign of trading top last week. TLT and GLD below all pivots also bullish for risk assets.
Global - Hold FXI short? I think so.
Currencies & commodities - $USD has faded a bit and EURUSD bounced off lows, but everyone knows EU is at risk and I think this will be reflected in currency in 2017 by a move below 1.00. Bitcoin, whoa! I took my eye off this (though was tracking earlier in the year). Oil doing OK here, with CL1 above Q4R1 and rising MAs which could give a pop to RSX.
Other technicals
Some monthly and weekly Bollinger bands now acting as resistance:
SPY fallen back inside M BB and entirely inside W BB last week (after 2 weeks outside).
QQQ has not joined the party and has been inside both M and W BBs entire post election rally.
DIA still well outside M BB, and still outside W BBS the last 3 weeks!
IWM outside monthly, but dropped back inside W BB the last 2 weeks.
But all USA mains except QQQ holding nicely rising 10MA or 20MA since 11/9.
Extended uptrends, but bullish technicals usually equals digestion. But hard to imagine not seeing a fling up to highs near year end or early January.
Sentiment
Several extremes recently reached. This does not mean the market has to go straight to bearish extremes.
Valuation and fundamentals
Moderate positive for market. Current valuation SPX targets 2350-2612 (admittedly wide).
Timing
December dates (published 11/26)
12/1-2 strong - turned out key pullback low as suggested last week: "If Tech holds Q4P a lot would line up quite bullish"
12/7-8 maybe turn - non event middle of up
12/19 - looks like mild high test +1 on 12/20 for DIA, QQQ, IWM
12/28 - TBD, but would make nice pullback low