Review
3/5/2017 Total market view: "Amazing rally continues, but we saw something last week that has been rare since the election - clear selling from levels. Granted, most of the levels involved were monthly resistance but SPX set reached 1HR2 with YR1 just above. This is not insignificant. However, 2017 leader NDX set remained above resistance, there is no divergence on RSI, sentiment does not seem too toppy, and after a big run up the first pullback is usually bought. ... The most likely scenario from here is a consolidation or mild pullback for stock indexes (if they aren't going higher already) which then is bought and more indexes test key levels."
Most USA main indexes were down a bit last week - only Tech closed higher.
Sum
Abbreviated version this weekend - Total market view as usual but not the supporting sections in other posts.
4 of 5 USA main indexes continued above all pivots. QQQ the leader back to highs on Friday, and NYA clearly held its MarP on the pullback. Only IWM has been below its MarP, and nearly tagged its MarS1.
Safe haven TLT has been below its MarP and so below all pivots throughout the month, and GLD is hanging by a bit to its YP and the other pivots. XIV continues to be supportive of risk assets. The usually reliable VIX has given two false starts - one by jumping above its MarP on 2/28 and again on 3/9; both closer to stock lows than the start of declines.
Main point here is that markets continue to be in a very bullish configuration for risk assets. The different indexes are in various stages of pullback off the highs reached on 3/1. Sentiment does has not been too toppy.
And yet there are significant factors which I think will limit upside ahead. First, monthly Bollinger bands on the USA main indexes. SPY and VTI have dropped back inside monthly Bollinger bands after being outside the bands in February. Once an index drops back inside the band, the band is more likely to act as resistance going forward. While QQQ and DIA remain outside monthly bands, this is fairly rare and at some point even a profit taking urge or other event will drop the price back in the band. Second, valuation has reached 17.99 per the current week's data and tagged the 10MA of 18x forward earnings (currently 2396). The moving average is still increasing which is a good sign, but I think the market may see some professional selling at this multiple. Third, the next visit to highs (should that happen) will likely involve RSI divergence on daily chart. Fourth, if the market can revisit highs or go higher, then major resistance lies on the SPY set (already tagged), DIA and VTI, which will all run into YR1 1HR2 Q1R2 clusters on any such move.
Simply stated I think the next more likely move is settling into a range. If this continues largely bullish for stocks then NYA will continue above its MarP and VIX below its MarP. If a bit more threatening, then we will see NYA below its MarP, VIX above again, and IWM likely lower. That said, at this point I think pullbacks will remain fairly limited until we see more testing of high areas.
Positioning
Last week started at 90% long (10 longs 1 short hedge) and had a few adjustments. 3/7 added 2 IWM short hedges; 3/8 took one of those off. So, 10 longs, 2 short hedges is 80% net long.
Bottom line
If bullish scenario plays out then can take off hedges and perhaps consider a bit of leverage again especially if GLD is below its YP. If bearish, then holding hedges decent enough for now. I don't want to have too little exposure when the market is still largely bullish for risk assets.
Pivots
USA main indexes - levels to watch are NYA MarP.
Safe havens - GLD back to test YP & Q1P cluster; any lower and it will be below all pivots which I would consider bullish for risk assets. VIX also back under all pivots as of 3/10/2017.
Global - Of the indexes I track, INDA the current leader above all pivots; EEM will be next to recover this status if higher.
Currency and commodity - Despite the bullish backdrop, DXY has been a real struggle this year. This is bullish for USA stocks and especially so for global indexes (EEM, FXI, INDA, etc.)
Other technicals
If we start to see USA main indexes showing signs of resistance at the monthly Bollinger bands, then that means next near term move down or sideways. In addition, next visit to highs should that happen will likely have RSI divergence.
Valuation and fundamentals
Fundamentals still decent but valuation finally reaching a forward multiple I have been expecting too for months, 18x forward earnings. Earlier this year I changed it to a moving average to smooth out some of the noise. While not guaranteed to halt the advance, I was expecting to see some reaction (and we did, with target range tagged on the day of the high). I will continue to monitor the market reaction to this valuation level. More on this next week in the usual valuation post.
Sentiment
Extremes of December haven't been replicated yet, so this helps the market maintain gains.
Timing (Proprietary experimental work in progress model)
3/3 - So far stock high 3/1, but I don't count -2 days as a hit. DXY high 3/2 FWIW.
3/20
3/24