REVIEW
5/7/2017 Total market view: "...valuation at 18x forward earnings remains a potentially limiting factor, and SPY set is heading into YR1 / 1HR1 major resistance, and QQQ set heading into YR2. These are significant levels and how market reacts will be very telling. A significant top on these is very possible given seasonality and valuation, but anything above would be very bullish. Main task for the week is to judge whether risk will continue to power up or if a top looks likely then better to hedge or reduce. Bottom line - Trends are up for risk but SPX and NDX heading into major pivot resistance levels which is where important turns can happen."
Results
So far NDX reaching YR2 without any rejection, but SPX came within 4 points of YR1 and finished the week lower.
Sum
USA main leader Tech QQQ and sector leader Semiconductors both looking great, above all pivots, above all MAs, and at resistance levels with no sign of rejection.
Global stocks are also delivering with KWEB best index ETF performance from 4/20 low that I am aware at about +10% from 4/20 open, and institutional 2017 favorites EEM and INDA doing quite well with 5% and 3.5% respectively.
But this is not the picture in other indexes - SPX has paused at YR1 / 1HR2 resistance area and failed at 3/1 highs; DIA & NYA/VTI also both failing at 3/1 highs; and IWM went higher for a few days but Q2R1 rejection and back to testing Q2P.
Safe havens held levels last week - VIX rebounded from Q2S1, TLT and AGG bounced off Q2Ps, and GLD held 1HP / Q2P combo. These increase the chance of a bearish scenario for stocks.
In addition, there are other technical signals that often precede weakness such as weekly RSI divergence on USA mains excepting QQQ, weak advance decline volume difference, and daily 50MAs rolling over to flat or slightly negative slope on DIA and IWM.
Bottom line
I've mentioned that markets are a toss up two weeks ago, and last week decided that chances of powering up were slim so reduced portfolio from 120% long to 70% long on 5/9, and back up to 80% on 5/11. Part of this decision was the poor choice of vehicles on 4/20 & 4/24 which I have addressed here and here.
If tech continues to lead and safe havens fade, then better to be full market weight. If pullback continues and IWM fails at Q2P and QQQ back under YR2, then I'd like to be a little less long.
Trends are up, but indexes at resistance and so far there has been mild selling on all USA mains except tech. I still think markets are a toss up. We'll see what happens.
Positioning
From 120% long to 70% by selling 2 IWMs, and hedging out 3 long units. Turns out TLT and GLD would have been better, but I had no confidence levels would hold given other charts.
PIVOTS
USA main indexes - Levels to watch are NDX YR2 at 5684, SPX set YR1s (which vary a bit from cash, ETF and futures), as well as IWM Q2P.
Safe havens - TLT and AGG holding Q2Ps, and GLD also holding 1HP / Q2P, as VIX rebounds from a very low Q2S1. All these threaten stocks.
Sectors of interest - XLF under Q2P all quarter and barely up for the year. XLE below all pivots again despite bounce attempt. The entire tech vs materials story - AMZN vs M, Bitcoin vs GLD, TSLA vs XLE is an interesting one if you are on the right side of markets.
Global indexes - KWEB! INDA & EEM doing great too. I thought EWZ weekly chart looked suspicious, but a big jump last week and back above all pivots. RSX below Q2P, SHC broke under YP and thus below all pivots on 5/8 and still below.
Currency and commodity - DXY 3 day attempt to reclaim YP and D200, and failed on Friday. DXY below YP and D200 makes global stock outperformance easier. Oil low 5/5 is bang on YP on CL1 contract. But well under all pivots on current contract and USO, so I'll avoid on the long side.
OTHER TECHNICALS
Weekly chart RSI divergence lesson here.
VALUATION AND FUNDAMENTALS
Really not helping stocks. Based on this I'd say very slim chance of bullish scenario for stocks playing out.
SENTIMENT
Of 4 meters I track, none at extremes though NAAIM exposure is getting up there.
TIMING
(Proprietary work in progress model)
May dates published in 4/30 Total market view
5/3-4 - so far stock index minor pullback low on 5/3
5/19 (stronger) - not sure direction
5/9 was actually there in system but I missed it on 4/30 post so will not count it.