Review
11/26 Total market view: "Bottom line - In a momentum move, especially at this time of year, we 'should' see signs of euphoria in the market. We are seeing 1 of 4 readings at extremes but that is not enough. Until more people get crazy bullish, usually best to hold. Even then, with momentum very high, often best to wait instead of trying to avoid a small pullback that quickly comes back.
I will sound more bearish on the market if: SPX rejects 2HR1 2209, RUT rejects 2HR1 1342 and INDU rejects Q3R2 19185 along with some trouble on VIX or XIV. Even so, until we see sentiment extreme as above I think most likely move is pullback that is bought."
Results
All 3 index levels mentioned above rejected last week, and XIV faded from a major resistance cluster as well. So far mild pullback for most USA indexes.
Sum
Since the election, we have seen an amazing sector rotation and power move up in USA small caps and financials, as other indexes also rallied. Tech and most global indexes have been left out of the party and the battle for 2000 top on NDX continues. RSIs on IWM, XLF and TLT high eye popping levels and some digestion would be the most normal thing. Key question from here is whether this is a mild stock pullback as safe havens continue to crumble, or a more threatening drop with more tech and global index weakness?
Due to pivot status, VIX, momentum, seasonality I am still thinking mostly long here. However, SPY daily comments were more bearish throughout last week and said take gains on leveraged longs Monday, then add hedges Wednesday & Thursday. On Thursday another sentiment measure reached bullish extremes, so that means 2 of 4 that I track. This is an additional point to reduce on the long side or be quicker to hedge. I don't know which way EU will vote but if the market were worried about this we would see EURUSD break down below 2015 lows, and so far that hasn't happened. If it does, then DXY will be higher and INDU could be pressured as well.
Bottom line - 4 of 5 USA main indexes are above all pivots, VIX is below all pivots; safe havens TLT and GLD are below most pivots (GLD still above YP). It is right to be mostly long USA indexes while stepping out of the way on leverage for the pullback. Next move to ramp back up longs or protect more recent gains will depend on Tech set Q4P, and what happens with currencies and rates with any political news out over the weekend.
Positioning
The moves last week were to take gains on the leveraged longs, add some short / hedging trades, and rotate into oil strength.
40% long USA main index leaders IWM and DIA
30% long sectors XLF and SOXX
10% long RSX
20% long DXY
20% long USO
20% short QQQ
10% short EEM
Total long 120%, total short -30%, long exposure 90%, total exposure 150%
Pivots
USA main indexes - Tech set sitting on Q4P support important for the market. If that breaks other indexes may have deeper pullback. If Tech holds then others like IWM and DIA clear sailing all above DecP without a test.
Safe havens - VIX saying all clear for stocks, XIV some pause. My interpretation of that along with the index rejections was be long, but back away from leveraged long. TLT and GLD in freefall and not on any pivot support. Given RSI some bounce possible but there is not really and good looking buy here.
Global - RSX clearly best among FXI, EEM, INDA and EWZ, as it returned above all pivots again on 11/15-17 as others were breaking down.
Currency & commodity - DXY has faded a bit as EURUSD hasn't broken down yet. We'll see. Oil one has choice of pivots on CL1 or USO. Both had significant pivot action 11/30.
Other technicals
NDX battling at the 2000 top.
Valuation & fundamentals
Valuation more a concern but fundamentals stronger; together a mild positive.
Sentiment
1 out of 4 already in bull extreme territory. I was watching carefully to see if others joined in. No ISEE spikes; put-call lower but not really extreme especially on weekly basis; NAAIM managers jumped so focusing on that:
2006 2nd half to current: top 1.8% percentile
2010+: top 2.2% percentile
2015+ top 4.0% percentile
No matter how we view the data, managers are at a bullish extreme. This data was available Thursday and charts were already suggesting to reduce on the long side. Based on this one could be a bit less long let's say 70-80% although 20% of longs right now on oil not 100% correlated to USA stocks.
Timing
December dates (published 11/26)
12/1-2 strong - 11/30 price high for many USA mains, at some time 12/1-2 might be pullback low. If stocks rebound on Monday as Tech holds Q4P a lot would line up bullish
12/7-8 maybe
12/19
12/28