REVIEW
5/21/2017 Total market view: "Color me a cautious and somewhat disbelieving bull. I think markets are due for more of a pause than 1 day bear wonder and -2.2% down from SPX highs; but if I have to pick between VIX and opinion, VIX is usually the better choice. Bottom line - Portfolio is a bit underweight markets with 2 short hedges and 2 shorts. I will be quick to cover these with any additional strength next week (ie, SPY continuing above MayP, QQQ above YR2, VIX continuing below Q2P, IWM above Q2P, XLF above MayP)."
Result
Markets did indeed come right back, so covered hedges and shorts back to 100% long. Still, many reasons to expect limited upside.
SUM
2017 USA main index leader QQQ has been on a tear, and last week closed above YR2. This is bullish because as long as that level maintains, threat of significant turn is reduced. SPX also cleared YR1 for two days, so the same conclusion: bulls in charge.
However, DIA and NYA/VTI both at March highs, and IWM bringing up the rear with much lower high and still below MayP.
Conclusion: Indexes are mostly bullish, but mixed in recent strength.
Safe havens VIX and XIV are supporting risk assets, but TLT, AGG and GLD showing some caution. Edge to bulls, but somewhat mixed here too.
Valuation and fundamentals are similar - SPX pushing the 10 period moving average of 18x forward earnings estimates which took a nice jump last week. But fundamentals per Citigroup Economic Surprise Index are not supporting this move at all.
Of the four sentiment meters I track, 2 are showing bullish extremes. This can often limit upside and increase the risk of a drop, especially if a third joins in.
Bottom line
I have been skeptical of the recent bounce but put caution on hold when indexes cleared pivots last week and VIX & XIV confirmed. Either the market will push to next levels higher - SPY Q2R1, QQQ Q2R2, DIA YR1 - or fade. We'll see what happens.
Positioning
Back to 100% long but at some point (and I believe sooner rather than later) a defensive adjust will pay.
PIVOTS
USA main indexes - QQQ above YR2, SPY above YR1, both very bullish as long as those levels maintain.
Safe havens - VIX and XIV saying all clear. AGG at interesting cluster.
Sectors of note - SMH semiconductors still powering up too.
Global indexes - Above all pivots are ACWI, FXI, KWEB, EEM, INDA. RSX, EWZ and SHComp weaker.
Currency & commodity - DXY 2nd break of YP on 5/15 the definitive move, and fast drop through Q2S1 to MayS2. Expecting lower.
OTHER TECHNICALS
Tech is on an epic run. NDX is set to close outside its monthly Bollinger band for 5 months in a row! The last time this happened was 1999, and that had a down bar shakeout in the middle of that move. While I am not saying a top of that magnitude is imminent, at some point the index will fall back inside the band, and I think this is becoming the more likely move over the next few months.
VALUATION & FUNDAMENTALS
Citigroup Economic Surprise not supporting the rally, though increased earnings helps market gain without becoming more expensive.
SENTIMENT
IEEE spike reading on Friday, and NAAIM at bullish extremes. Also, I interpret Dr Shiller's recent video as capitulation.
TIMING
(Proprietary work in progress model)
May dates published in 4/30 Total market view:
5/3-4 - stock index minor pullback low on 5/3
5/19 (stronger) - stock low 5/18 (-1)
June dates
6/9
6/15-16
6/21-26