REVIEW
7/1/2018 Total market view: "IWM, QQQ and SPY (barring a big gap) are set to open above YP, HP and QP but below MP. There is a fairly big cluster of support on SPY just below - so even if first move is down, dropping onto major support could be a buying opportunity. If the market gaps higher and/or rallies on Monday, then we'll see at least one of these back above all pivots and we'll have an easy answer."
Result - So far 7/2 low on support was a buy. Indexes strengthened considerably Thursday and Friday.
SUM
A lot of recent recommendations tilted bearish or at least encouraged to take profits in small caps and tech (while avoided the troubled global indexes all Q2). TLT long first recommended mid May, then shorts on SMH, IWM, QQQ, and XLF were all mentioned as good looking setups in recent weeks. I was certainly skeptical of the risk on trade seeing several key indexes opening below major support for the first time in over 2 years.
But as I have said many times, often it is good to start the quarter clean with cash available to spot the next best setups and so far this has worked like a charm. On Monday 7/2 SPY (and ES / SPX) opened below 2HP but rallied to finish above. Tuesday 7/3 also looked threatening with an MP rejection, but again the 2HP held. Thursday was especially strong in ES futures, again testing and holding the 2HP early with a big rally all the way to MP at close. As this happened main index leader IWM closed above its MP, current sector leader XBI closed above all pivots and MAs, and VIX had an MP rejection - all bullish signals.
Buying in Thursday and adding early Friday on the launch as QQQ and SPY joined IWM above all pivots, with VXX confirming by dropping back below all pivots, is now nicely positioned.
A few other ideas - XLF looks set to bounce off its YP. Usually better to buy strength, and XLF will be under HP, QP and MP, but given all the press on this sector and what I think is a likely turn in bonds this seems like a good setup. Regardless risk is a close below the YP. A lot of global ETFs were beat up in Q2 as currencies slid and trade war impacted negatively. INDA has recovered back above its YP and closed fractionally above its MP as well; this could benefit from additional deep pocket buying and/or DXY slide.
Right now small caps, tech, and biotech are leading higher. SMH is lagging but could be an add if above the MP. USO is also at highs but to be honest I missed the ball on the last move as I passed on a massive up day then passed again with an entry bang on YR2. But now it is above YR2 for the 2nd time this year, and unlike the May top above YR2 on continuous contract as well. XLE should get in gear and is a potential buy with any further strength next week.
The second half is starting with a risk on move. There were a lot of potential buys in the last week and here's the key thing - not much is at resistance yet. Only IWM has reached a JulR1, even 2 hour charts are not overbought on RSI yet, and indexes have room to hit most Bollinger bands (Q, M, W, D). This means a lot of indexes are set up for a decent move higher.
VIX and VXX are looking especially bullish for stocks with a lot of room to drop. The only safe haven indicating otherwise is TLT, and bonds via the ZB and ZN continuous contracts are right at resistance and just asking to be hit.
SPX valuations are reasonable, still at the lower end of forward P/Es for this year. A return to 17X means well above 2800. Sentiment went bearish in a hurry, with daily put call back to elevated levels with all the press about the tariffs with China.
It is possible that last week was the JV team and pros coming back from 7/4 week holiday will turn the tables. If that happens then we'll see DIA fail at MP or HP test, and XLF fail below its YP as VIX and VXX turn around. But right now I have to be pretty bullish here and simply thinking the since SPX just held major support it is likely heading to major resistance, and that level is 2830. If that happens then leaders can make new highs so that means IWM above YR2, and QQQ could potentially see QR1 HR1 YR2 cluster 181-184.
PIVOTS
USA main indexes - 3 of 5 USA mains back above all pivots. For the extra bullish scenario it would be better for DIA and NYA to move above 2HPs. If not then DIA can be a hedge.
Sectors of note - With SMH weaker, XBI taking over as leadership role. This flip flop has happened before. XLE seems like it should rally with oil and XLF set to bounce off its YP.
Developed - By the end of the week DAX has moved from below all pivots to at least above its QP. Nikkei also tested and held its YP.
Global - China taking the hit with SHComp under YS2, FXI and EEM below YPs. It would be a bullish sign for risk in general if EEM recovers back above its YP.
Safe havens - VXX below all pivots means correct to be bullish on stocks. VIX also back under MP. TLT at major resistance via weekly chart and ZB ZN continuous contracts. While someday there may be a sustainable move up in metals right now they just don't seem bothering with.
Commodities - USO the real leader this year and considering DXY high at the end of June that is remarkable. There has only been 1 trading day below a QP in USO this year, otherwise a monthly pivot breaks.
Cryptos - BTCUSD showing signs of life, actually above an MP for the first time in weeks. I still think it is going to 3-4K.
OTHER TECHNICALS
Per RSI and Bollinger bands on 2H, daily and weekly charts, all USA indexes have room to move up.
Also I'll be watching to see that daily new highs stay above new lows.
VALUATION
Forward P/E (10 week avg) currently between 16-17. 17X tag would mean above 2800 and given the time and slope more like 2850.
TIMING
While my tweet from 6/19 calling for sideways or down 6/26-8/10 in IWM and momentum names was timely with a 6/20 top, it is looking like I misjudged this year's rare cycle combo.
July dates
7/3 - Stock index pullback low
7/10-11
7/25