Abbreviated version of blog posts this weekend, as I am just going to do this summary and not the components. This post may be a bit longer than usual though.
Review
1/15/2017 Total market view: Sum - "In most USA indexes a range has developed which I think favors the sellers." ... "Bottom line - Portfolio is 120% long and there is ongoing decision to hold or reduce. Based on GLD, VIX and XIV and other technicals I am ready to take some gains off the table, but will still be willing to hold long if GLD YP gets clearly rejected next week."
Result
GLD gapped up to start the week, and taking gains on the 2016 Q4 high fliers (IWM and XLF) was a good move so far.
Sum
Of USA main indexes, 4 of 5 are above all pivots. Only IWM is a bit below. RSI extremes of 2016 Q4 have been worked off in a very healthy fashion; ie, not much damage to price. In addition, risk assets that did not rally in 2016 Q4 have been up in 2017 Q1, meaning tech set and global indexes. $DXY has turned lower, though, allowing global indexes to rally and GLD to do well. TLT had a brief re-balancing bounce and already back near lows.
Aside from $DXY weakness which in my view has mixed effect on other assets, most of the above is very bullish for stocks. That said, we may see more of a shakeout before another advance.
While pivot status is clear, my read of weekly bars is mixed. SPY and QQQ seem to invite selling (2 small up bars) but DIA and IWM invite buying (2 small down bars). Other mixed signals: TLT weakness invites stock buying, while GLD strength discourages. I read of record VIX shorts, yet VIX has remained below all pivots on daily close since 11/10 with only very mild advances.
A bullish scenario from here would be IWM recovering its JanP (along with XLF) as other stock indexes advance. If that happens, along with safe havens confirming full risk on, we might want to be back to 100% long or more. A bearish scenario would be more of a shakeout down to Dow JanP and then below. If that happens we can hold existing positions or be a bit less long.
Bottom line - While a range has developed which may go lower, at some point I think we will see a move back up to the top of the range and ideally higher for a significant top.
Positioning
Usually a dedicated post but mentioned compressing the blog this weekend.
Heading into the week, portfolio was:
3 IWM, 2 DIA (both from near election)
3 XLF, 1 QQQ (pre & post election)
2 SPY from 1/3
1 XBI from 1/4
12 longs, 120% long, no shorts
1/17 - XLF was the first to break its JanP so -1, IWM -1. By the close wanted to be a bit less long and took off XBI and another XLF, so -4 longs in total leaves 8, thus 80% long.
1/18 - Not great entry but SMH still flying so back in, 90% long.
1/19 - No change
1/20 - No change
9 longs, 90%, no shorts
If IWM does not recover its JanP next week that will be the next to reduce further.
Pivots
USA main indexes - Dow JanP level to watch as support, as well as IWM JanP which acted as resistance on Friday.
Safe havens - GLD holding above YP, but rejected from 1HP. Personally I don't think GLD will have repeat of 2016 and I'd rather see GLD below long term pivots. If that doesn't happen though, I will respect that strength. Zero hedge is reporting record bond shorts but TLT enjoyed a few days of re-balance buying, then stalled, and quickly back near lows. VIX is staying low for quite a while as XIV soars - this cannot last forever but for now it is very healthy action.
Global indexes - DXY weakness is allowing strength in the global indexes I track. FXI above all pivots and EEM same. INDA 1HP rejection, and currently above YP and JanP could be first to trigger short. RSX is sitting on JanP and could be a buy here; I passed on 1/3-4 move in EWZ and watched it go up since. SHComp is typically for info only as ETFs are low volume, but it is tradable, especially as long; it had a great hold of YP and D200MA last week. Usually I like to have some positions in the global indexes as they often move more both up and down than USA indexes. After playing RSX long in 2016 Q4, long setups didn't look ideal and was already long so didn't rotate. I will be more willing to play global indexes long if DXY breaks its Q1P.
Currency and commodity - DXY tested Q1P last week and so far holding. I have been massively bullish DXY from mid October last year and with DXY in 96s was calling for well above 100. All that happened, now what? A hold of Q1P should resolve bullish, and even if that goes there is 1HP and YP not far below at 99.97 and 99.25 respectively. DXY is also testing its previous high area of March 2015. If Q1P and previous high 100.39 hold, then easy to stay bullish on DXY. Anything below and situation becomes a bit more mixed - not overtly bearish, but medium term weakness while holding long term strength, thus no edge either way.
Oil via both CL1 and USO is above YP, 1HP and Q1P but below JanP. It may try again soon to clear JanP. This would also support RSX buy.
Other technicals
Last week I mentioned Average True Range, and how a diminished value on the daily chart usually leads to increased volatility (ie market topping process then a drop). On the weekly charts, though, USA main indexes are not at remarkable levels. In other words, we could easily see more sideways in the bigger picture.
The other levels to watch here are monthly Bollinger bands. SPY testing the band yet so far remaining inside; DIA staying strong still outside the band; QQQ testing the band; IWM has dropped a bit back inside; VTI looks like SPY. Pushing the band yet remaining inside at some point will invite selling, or very least caps upside.
Valuation and fundamentals
10MA of 18-19x forward P/E currently 2368-2500, or 4.3% to 10.0% upside on SPX. Citigroup Economic Surprise Index still very strong.
Sentiment
Multiple bullish extremes reached mid December worked again at identifying a top. We don't necessarily have to see bearish extremes on a pullback low. Most extremes have been worked off without much damage to price.
Timing (Proprietary experimental work in progress model)
January dates published 1/1
1/4 (strong) - 1/3 DXY high
1/6-9 - 1/6 high for SPY, DIA and VTI
1/17-18 - So far pullback low +1 on 1/19 on USA mains, and DXY low on point
1/28 - TBD