Last week: "I have to be bullish here with all USA indexes above all pivots, safe havens all flashing green light for stocks, sentiment not at extremes. And yet I remain in "upside limited" camp and expecting significant resistance if we see a tag of these target areas:
SPX SepR1 to 2HR1 - 2193 to 2209
NDX SepR1 - 4842
INDU SepR1 to YR1 - 18630 to 18727
RUT SepR1 / Q3R2 / 2HR1 / YR1 - all 1247 to 1261 in zone
VTI YR1 to 2HR1 - 112.46 to 113.53 also tagged zone
If Friday turns out to be a bull trap the first thing we will see is INDU set below SepP, VIX above and GLD likely above."
Yup that is all a direct quote from 9/3!
Results were:
SPX high 2187, 6 points shy of zone; 3rd time 5-6 points from level
NDX high 4839, deemed "close enough" on 9/7
INDU high 18551, within 100 points; 3rd time under 100 points from level
RUT 1261 *the high!*
VTI high 112.75 in zone!
Significant resistance indeed! 3 of 5 directly there and remaining 2 coming quite close.
Sum
I've been bullish post Brexit and been saying upside limited the last several weeks. If you heeded this advice you participated in most of the rally and have been taking some profits at the highs or hedging. OK, now what?
Keep in mind that this work is designed to make day to day (or week to week) decisions on exposure and setups, and I don't try to plan out too much in advance. That said, due to a combination of factors such as: yearly levels involved in the rejections and the moves we have seen since February lows; quarterly and monthly chart configurations; trapped bulls; Elliott wave patterns; FOMC and election risk; recent disappointing economic data; I think this is more than a two day affair and we are likely going to see a correction of at least -5% in SPX. It could be more than that, but let's start there. This would be about 2085 and near enough to SepS3 on SPY. Also, since the market has been above quarterly pivots since reclaiming in March it may happen that we see a quarterly S1 in Q4, but I am getting ahead of things here. Also, if the market changes, I'll change my mind too.
The VIX has worked extremely well confirming the real trouble and when it is ending, so I will continue to use that to guide my decisions. Watch the reaction from Q3P to 2HP 18.28 to 20.07. Study the VIX charts in the safe haven section to see what we are looking for on a buy like 2/12 and 6/28. Simply stated above 20.07 means real trouble for the market, while a slow-down of the move up and subsequent rejection of that area could be a decent stock buy setup.
If you have cash on the sidelines now or are hedged, then the decisions will be what to buy and when, or when to lift hedges. Maybe I will start to do TPP low checklist :) I ran the top checklist several times in July only to get Nos, then a pause in late August, but if you were running it in your mind 9/7 to 9/9 open then you knew things had changed with the addition of yearly level rejections, highs tested with one lower high, and VIX sounding alarm.
We want to buy what is going up, or recovering pivots sooner than others. Remember a buy of a monthly S1 or S2 may not be reliable, as those can hold for a day (or a few hours) then break. The turns that matter on monthly levels tend to have others more important levels nearby, like 2/11 low on stocks (SPY & DIA FebS1s exact) also had DIA YS1, SPY YS1 recovery next 2 days, etc).
GLD is above all pivots currently sitting on SepP, and TLT is testing Q2P
EEM above all pivots (barely)
FXI well above SepP, above Q3P and 2HP, but under YP
Shanghai Comp, roughly tradeable through ASHR, also above SepP, Q3P and 2HP (ETF not above SepP however)
RSX, EWJ, EWG all above SepPs but recent long term levels rejections so caution warranted
IWM and XLF slight breaks of SepPs and they will likely be the first to recover on USA indexes on any bounce. EWZ also similar look in relation to SepP, and of course one of the market leaders thus far this year. SMH / $SOX has been the USA sector leader and that may or may not continue. That finally ran out of gas near on SMH 2HR2 exact, with Q3R3 and YR2 not far above, after being RSI overbought or near it since mid July. Amazing run.
Also, I may start posting charts of pivots only and MAs (no support or resistance levesl) to watch for buys. Best often combination of pivot hold and either an RSI setup (more soon on that) and/or rising MA on your side.
So there you have my watch list as of today. Remember, it is better to take decisive and meaningful action on good setups when the market is ringing the bell with defined risk reward - (like 7/5-6 most USA mains holding above all pivots, then taking profits near yearly level targets) then flailing about trying this and that, wasting emotional and perhaps actual capital on bad setups, or shorting after the fact, etc. We may get a good setup Monday, or if everything keeps going down then it could be a while yet. I'll be watching the VIX, and oh yes, maybe this too:
Last August when DT first came onto the scene the market freaked out too. In the last week H as gone from about 90 to 80ish. Wall Street likes status quo, H is very much that, D is not.
Bottom line - This is real pro selling from yearly levels so caution is warranted. If you heeded my advice you are not too bothered by this drop but instead glad you took some gains (or are hedged) and now have money to shopping when the setup looks good. Watch the VIX as noted above. Buy what is going up, or recovers sooner than others. Best days for action are when multiple indexes all saying the same thing, along with other technicals and perhaps a sentiment extreme.
Pivots
USA mains - Damage on long term and medium term levels. SPX YR1 rejection, INDU YR1 near test and rejection, RUT YR1 exact and rejection, VTI 1 day overshoot and rejection. Medium term all main USA indexes below SepPs; some below SepS1s.
Safe havens - TLT leading down, but testing Q2P. GLD above all pivots. The real story VIX and variants - after being below SepP 9/2 to 9/8, VIX exploded higher Friday and moving towards Q3P and maybe 2HP.
Global & other - Cannot blame selloff on DXY (still below YP, 2HP and SepP) or oil (CL1 contract above all pivots. Globally, China faring best here Hang Seng / FXI and Shanghai Comp below YPs but above the others, 2HP, Q3P, SepP.
Other technicals
Daily charts on USA main indexes are already approaching RSI oversold, and the reaction from that will be interesting. The larger RSI picture on quarterly and monthly charts is a bit more threatening - more detailed post here.
Valuation & fundamentals
Citigroup Economic Surprise Index confirmed rally by launching into positive territory for the first time in 18 months; confirmed pause by rapidly fading back down, and led selloff by dropping back into negative territory.
Sentiment
Bull sentiment extremes reached mid August, written up here. We may need to see bear extremes again for real low.
Timing
Nope, didn't get this one. Maybe other dates in September will be lows.
8/29-9/2 - admittedly wide; so far stock pullback low and TLT high
9/12
9/16
9/23-27