REVIEW
1/7/2018 Total market view: "All systems go for stocks with all USA mains, the four sectors that I track (SMH XBI XLF XLE), and all 8 global indexes (ACWI, SHComp, FXI, EEM, KWEB, INDA, EWZ and RSX) all above all pivots. Bonds are clearly the weak link with TLT, AGG and LQD below 1HP, Q1P and JanP. ... Interestingly metals making a move with GLD, GDX and SLV above all pivots; partially reflecting DXY weakness below all pivots."
All these moves continued: stocks higher, bonds weak, metals up, DXY lower.
SUM
Equity indexes have had an amazing start to the year. SPX and INDU weekly RSIs of 88-89 are both significantly higher than levels reached in the 1990s. Markets are in a euphoric blow-off phase and we are likely to see higher highs in Q1 and 1H; in this kind of environment we 'should' see at least some main indexes reach YR1s before a major top.
Assuming one is decently long with some GLD/GDX the thing to do now is monitor to make sure the portfolio remains long leaders and decides when to take hedging positions to lock in some gains.
As noted from the first week, bonds are weak across the board while metals were clearly the place to be. Interestingly, VIX and XIV have not shared index enthusiasm so i think the next place for a trade is UVXY. See safe havens for details on this setup.
Simply stated, even if indexes pause next week, given momentum i think we will see YR1s on at least 2 of 5 main indexes and likely more. This means market going higher. Dollar weakness is an obvious tailwind for all overseas markets and commodities. The commodity theme could be especially worth watching along with value as a factor; as healthy global economy along with commodities as an asset class near the bottom of returns for most of the decade could combine for a healthy rebound in returns this year.
PIVOTS
USA main indexes - SPY, DIA, IWM and VTI all cleared Q1R1s last week (QQQ cleared 1/5), all without any trouble. SPY and NYA even above 1HR1 with QQQ and VTI testing that level, DIA and IWM a bit more to go.
Safe havens - VIX lows 1/3-4, and XIV top near JanR1 and some minor fade from that level. GLD, GDX and SLV above all pivots partially due to DXY weakness. Bonds the weak link and long term investors should watch their allocations and take defensive action if dividend adjusted technicals weakness further. See safe haven post and tweets for details.
Sectors of note - XLE on a move along with oil. SMH has not made a new high; in addition, the all time highs on XBI and SOX worth watching.
Global indexes - All 8 above all pivots so the question is relative focus. I had recommended INDA in Dec, and long time favorites EEM and KWEB recovered above all pivots later in Dec. FXI was trickier entry with a massive gap. My time is limited for this project, and cannot do everything I'd like, but developed ex-USA also looking great due to $DXY plunge - for example EFA and EWJ both particularly strong.
Currency & commodity - Oil getting institutional rotation to start 2018. DXY below all pivots and likely going lower. Also, since commodities have been near the bottom of asset allocation models for many years, think this could be year for significant improvement. Not sure the best way to play this but will likely benefit RSX and EWZ.
OTHER TECHNICALS
New highs / new lows very strong, and likely slowing highs and more new lows before a turn that matters. MCO also suggesting strength.
VALUATION
18X acting as support, with SPX bumping up against 19X 10 week average forward P/E.
This could add to pause idea with some shakeout or volatility spike as next move.
SENTIMENT
Also something to watch because risk will increase as crowd get more bullish and more leveraged.
Daily put-call back near relative lows; weekly put call on the lower side but not really extreme.
AAII correctly massively bullish to start the year; a bit lower last week. Bull-bear spread top 2.5% of all readings since start of index in 1987.
NAIIM surprisingly weaker but seems that IWM caught up late last week.
ISEE index moderately high reading 1/8 but averages room to go up.
Bottom line is getting up there but given fade last week not across the board extremes which we will likely see near a major top.
TIMING
1/4 - middle of up, non event
1/10 - mild pullback low
1/15