USA main indexes

Weekly charts and long term levels (yearly & half year) only:

SPX / SPY / ES
COMPQ / NDX / QQQ / NQ
INDU / DIA / YM
RTY / IWM / TF
NYA

Sum: The more of these that trade below YS1s, the more likely we will see a batch of YS2s on the low that counts. Considering some current YS1 breaks that we are seeing after the market stabilized for a few weeks, that's bearish. 

SPX broke YS1 last week, SPY still above, ES breaking this morning as I type. Bearish to break the YS1s as many YS1s tried to hold the market for the last few weeks. On the long term level, next support is far below ie YS2 / 1HS2 combo at 1748 SPX.

COMPQ broke YS1 last week, NDX on the level, QQQ well above (discrepancy due to 8/24 spike), NQ break. Barring big recovery today (anything is possible) likes like both cash indexes and the futures will be below YS1s, bearish.

Interesting, INDU and DIA well above YS1s, with YM testing this morning. So this type of relative out-performance over SPX and NDX makes INDU/DIA for now, first on watch for any bounces. This is especially true if YM continues to hold YS1. Conversely, if you are short (as one would be following this method, along with TLT and GLD longs), one could use DIA as hedge if you wanted to keep more gains on stock bounces. 

RTY / IWM / TF stopped at YS1 on the bounce, making visit to 1HS2 / YS2 area likely.

NYA broke its YS1 on close for 1 week, recovered, bounce, down but held, and looks likely to open below this morning.

Currencies

Do pivots work on currencies? Yes!

DXY W with long term pivots. DXY lifted above its YP a few times in 2013 only to stall. But in 2014 it tried again and a tremendous move followed, with a key retest high bang on 2015 2HR1. Note this week's break of the 1HP and test of the YP at 96.48 - a huge level to watch going forward.

And here's the Euro, EURUSD. The break of the YP in July 2014 led to a huge drop. Like the DXY testing its YP, the EURUSD also tested its YP for the first time since July 2014 this week.

USDJPY was in the news this week. It has been completely above its yearly pivot since late 2012! But this week the YP broke for a second time, and that should be definitive this year. If YS1 / 1HS1 combo near 115 breaks, then next major support is 110-111.

And the AUDUSD has been completely below its YP since May 2013. China slowdown? Not a surprise here. As long as it stays under the long term pivots of 1HP .731 and YP .749, trend is down.

Lastly, do you think pro Bitcoin traders are using pivots? 2014 highs on the YP / HP combo, 2015 low on the 1HS1 exact and 2015 high very near the YP / 2HR3 exact, and recent support on the YP near exact. Hmm.

Breadth

Continuing my series of integrating other tools with pivots, this post is about market breadth. There are many ways to measure: advance decline, cumulative advance decline, technicals on these like the McClellan oscillator, new highs & new lows, percentage above or below moving averages... the list goes on! 

The Pivotal Perspective is that we can just look at pivots on the most broad indexes. I've already written about the NYSE Comp ($NYA) here, but we can go a bit further. If the focus is strictly the USA market, I'd add the Russell via IWM for ease. Then we can go to institutional indexes (or ETFs that use those as benchmarks):

MSCI EAFE via $EFA, developed markets outside USA & Canada
MSCI World Index via $URTH, developed markets
MSCI All Country Index via $ACWI, developed and emerging markets
MSCI Emerging Markets via $EEM

OK, you could make a  case for the Russell 3000, or sticking with MSCI, and if anyone has any compelling arguments for why I should do things differently then please let me know. We've got 6: USA total including some obscure listings like ADRs ($NYA), a small caps index that is frequently traded and watched ($IWM); then global developed markets outside USA (EFA), developed including USA (URTH), developed & emerging combined ($ACWI) and emerging alone ($EEM). That should give us a good picture!  

And if we wanted to keep things very simple you could just do NYA for USA and ACWI for the world at large and that is what I'll show in charts below. First chart weekly with long term pivots only, then daily below that. NYA was above both HPs (half year pivots) and YPs (yearly pivots) from July 2012 all the way to October 2014. The RSI is an interesting study but I'll leave comments on that for another day. After that drop, NYA was able to hold support with struggle in early 2015, and broke down convincingly in summer 2015. Key tell: the YP was clear resistance in early November 2015. The 2016 drop is really not a surprise with this view since the 2015 yearly pivot was resistance and 2016 opened below both long term pivots as well. 

Now onto the daily with medium term (quarterly and monthly) pivots added. You can see the recent hold of the YS1, but NYA like most other indexes stuck under the FebPs as of close on 2/4/2016. Very simple, recovery of the FebP "should" lead to more bounce, but a second break of the YS1 would be quite bearish. 

On to ACWI. Guess what? It looks like the nearly same chart! Slight difference is that 2015 cleared YR1 for a few weeks, probably due to China rally, but had similar breakdown of 2HP and YP in later 2015.

Like NYA, ACWI opened 2016 below all pivots and went straight down to YS1, which held on the low. But despite the bounce, it too is under the FebP as of 2/4/2016. We'll see what happens. 

Sentiment

This site is all about this pivot method but I think there are a few useful complements. I addressed the technical side of these recently in this blog post. This post is about sentiment and how I approach it. I try to keep things concise as no one has anytime for reading paragraphs anymore, but sentiment analysis does take a bit more time. 

This takes a bit of work but for dedicated traders / investors I think once a week this sort of thing can be worthwhile. The main point is to see if sentiment is at extremes, especially when running into pivot support or resistance. But instead of just one reading I like a combination. 

Here's the standard put-call ratio on a weekly chart with a 10MA in blue. The MA is the only thing I am looking at. Let's look at the extremes. In September 2011 after a fast 20% drop and down at lows this was above 1.2. Then in early 2014 with the market on QE steroids it was down to .81. So the first point is the drop last fall *which held NDX YP* helped confirm the buy setup because it was so clear using this that there was a lot of fear in the market, yet the biggest level on the leading index held. I've written several posts about it, but my view of 8/24 is that the NDX YP held because not one hourly bar closed below it on the drop. 

Conversely, at the end of 2015, put call had dropped not to absolute lows but considering the low of the year was .91 in June with everything globally at highs, there was a lot of complacency and expectation the market would be OK. The current level of 1.05 is still elevated but as we can see from September it can go higher. 

And here's the daily chart view with the same setup. Again, the relative value against extremes. If you view it this way then the end of 2015 really jumps out because put-call was down to about .87, which is just where it was near 5/20, 6/22, 7/23 and 10/29-11/3 which were the highs in the market. That said, current value .96 not extreme. It has come down sharply from the 1/15-20 readings which indicate a lot of people think low is in, expecting a bounce and/or taken off some hedges. 

OK so put-call dropping, maybe it is dropping too fast for market at lows but main point - not really at extremes. No edge, perhaps a slight point to bearish for market because it is closer to lows than highs, while stock indexes are much closer to lows. I think put-call is showing a bit more optimism than the market deserves, but still, no real extreme. 

The next thing I check is the ISEE index:

There are several things that matter. Intraday readings above 150 are too bullish and towards the end of last year even 140 area marked several key highs. Then below 75 is too bearish, although in later stages of a bull market where the pros are more concerned about locking in gains it took a string of these for a low, whereas in earlier stages one day near 75 would help confirm a decent pullback. Then I check the 10, 20 and 50MAs to see if they are pointing one way (like top / bottom 20th percentile) or at extremes (top / bottom 10th percentile. ISEE data goes back to 2002 but you can also sort for current environment. When the market was bullish I was just concerned with data from 2010 or 2012. But now I think worthwhile to include other bear market data, and you could even make a case for just using 2002-2003, 2007-08 in the current environment. However, in the early years (probably before 2008) the values tended to skew much higher. Points:

1. ISEE spike high 1/26 at 146 followed closely by 139 the next day too optimistic in my view. Consider Santa 12/24 with market at highs was 144. 2/2 did scare some folks with reading of 61, and 1/20 was very low 45. That is down there and helped confirm next move would be bounce. See how this works? 1/20 was also the date of a post called "Big turn?" just because I saw so many indexes & ETFs rallying from yearly support levels. A glance at ISEE (along with put-call above) helped confirm some bounce as next short term move.
2. Using data from 2005 on, 10MA is 63% percentile, 20MA is 93% percentile (still bearish extreme), and 50MA is 96% percentile. ISEE has been the most bearish of the readings for a while. So picture long term a lot of fear, short term very sharp jump. Like put-call, maybe too much.

Then I like the AAII reports, both the managers and the individuals. Managers here.

While this reading reached extreme low last fall of 16, again with support holding, it helped confirm a buy setup. Although interestingly, the highs here were Feb 2015 and end April 2015, so the managers correctly reduced exposure before the drop. Last fall with many main indexes testing highs, exposure was middling 70. This was likely due to weakness in breadth ie small caps. Recent readings in January reached 34 and 26. 26 is 88th percentile of all readings from 2006, so definitely on the low side but not the level when people are really afraid in depths of bear market when we would see below 20. After getting to 42 or 74% percentile last week, it is back down to 22 or 90% percentile this week. That is a bearish extreme.  

Lastly the AAII individuals.

Now this is a tricky one, because this crowd is savvy and often right! For example, last summer this index was putting in extreme bearish readings with index chopping sideways at the highs, and they were right. But even they tend to be fooled on the extremes. 

Current bull 27.5%, 89% percentile from 2005. To be clear, this means 89% of all readings were higher, and only 11% were lower. So, lower side and near extreme which I somewhat arbitrarily say top or bottom 10%. But on 1/14 the reading at 17.8% was 99.8% percentile ie the 2nd lowest reading of all since 2005. That was an extreme! Although somewhat correct because the market went lower into 1/20! 

Bull bear spread helps show the difference between the two, with the current week at 75% percentile and two weeks ago down to 95% percentile so definite bearish extreme, and that level for 2 weeks in a row. Then you can check at 8 week moving avg of bulls, which is now the absolute low. It is quite interesting to me that there literally dozens of extreme low readings in 2015, comparable to March of 2009. This means the AAII individuals got it right! 

Bottom line is that 2 weeks ago, the put-call, ISEE, AAII managers and individuals ALL at bearish extremes, and several indexes held their YS1s, or broke and quickly recovered on 1/20-21. That said, like a momentum oscillator can stay overbought in bull markets and oversold in bear markets, we should expect low readings in a bear market. This week only the AAII managers and AAII individual 8 week avg are at bearish extremes, and other readings have moved up with the market stabilizing after 1/20. 

Basic interpretation: bear extreme above major pivot support invites bounce; bit too optimistic too fast below resistance (ie indexes still below all pivots) invites another move lower. Right now we are not seeing extremes; I am wondering if put-call and ISEE daily readings and 10MA just a bit too high for this market, but the AAII readings may be enough to counter-act. So not much edge this week. If any stock index clears its FebP then short term optimism warranted; if that doesn't happen, and sentiment continues to improve, then we could see another drop. Thanks for reading. 

 

Dollar and gold

I've written about gold here on 1/27 and followed up here on 2/1. I haven't talked about the currencies, but pivots work on these too. First, something very interesting has happened with the dollar just in the last few days. Here are the charts: first weekly with long term pivots (yearly & half-year) only, then the daily with the usual view of long term and medium term (quarterly & monthly) as well. 

DXY the dollar index has been entirely above its yearly pivot from mid August 2014, and in fact is the first touch of the level since then. During this time it has been mostly above its half year pivots as well, with a few breaks in 2015 2H that did recover and rally to 2HR1 exact on the highs. So from The Pivotal Perspective, this test of the YP is really important. Above the YP and we can think YR1 at 102.72; below and start thinking YS1 at 92.45.

Here's the daily view. The selling started with a rejection of the FebP. A break of the monthly pivot has happened several times last year, but the difference here is the very next day it broke through Q1P without any attempt to hold, and the 1HP didn't bounce either. Now the YP as I type is caving without any try. Next support is a long way down. 

Meanwhile, gold is following through on recent advances and doing the opposite, clearing its yearly pivot. Using the continuous contract below, you can see GC mostly below both the YP and HP since early 2013. There were a few breakout attempts that quickly failed. I'll address these soon in another post. 

Here's the daily view of the current G6 contract. Unlike the end of 2015, it has been above its monthly pivot in both January and February. Then it cleared the 1HP / Q1P combo. That looked like a failure but came back enthusiastically and cleared again. After a brief pause it has been off to the races. In pivots a lot of the time a second move is definitive, and in this case at the end of a long downtrend it took three tries to really clear and get moving up. 

So the big question here is whether this is normal pullback to support on DXY and another failed breakout attempt in gold, or whether we are seeing a real long term trend change. I don't know, but I do know where to watch to answer this question. DXY YP 96.48 and GC G6 YP 1137 (just continue to update on rollovers). 

Financials

Financials have been the news recently as banks have been selling off. What is The Pivotal Perspective on this sector? 

First of all, take a look at the plain XLF chart without any pivots. See that spike low on 8/24/2015? Well that low goes into the calculation of the yearly and half yearly pivots for 2016. So I'm less certain than they will work as usual. 

Example: we are in a situation where XLF is down quite a lot, but unlike almost everything else it hasn't reached its YS1 yet. 

While we can watch to see if those levels activate any programs (the spike on 8/24 sure does), it may also be worthwhile to watch the S&P Financial Select Index or IXM. This did not have the same spike low, and I think the pivots "should be" more accurate. Its long term pivots are on the next chart below. As you can see, it is already below the YS1.

Here's the standard view including both long term and medium term pivots. The 1/20 low was on Q1S2.

Filters

Pivots work well a lot of the time, but even with a good method there can be some false signals. For example, yesterday SPY looked to be lifting from the FebP. As this was the first change of pivot status since 1/6, this appeared to be at least somewhat bullish - keeping in mind that SPY was still well below the more important longer term levels of the yearly and half-year pivot. That said, with nearly all stock indexes and ETFs rallying from yearly levels, one could have easily thought the bounce would go further. As it turns out, the market will open lower today and while SPY will still be within striking distance of the pivot, SPX and ES are clearly below. 

If you looked at the SPY bar and reduced hedges or shorts based on first daily close above the pivot, then you'd have to be thinking about putting them back on today depending on the close. The main point of this post is to consider ways we can reduce false signals. This takes a bit of work, but those who like to understand the market and have fewer wrong moves will benefit. But if you don't have a lot of time, still I suggest #1 and #2. 

1. All variants of asset
Check all variants of the asset you are trading. This involves just a bit more work, but I think the result is higher confidence setups when they are all clear. For example, I refer a lot to SPY here but the cash index SPX is really the base for the ETF; and there is quite a lot of trading on the ES futures contract. As most people know, these are all related and exactly what I mean by "all variants of the asset." So there is a similar point on QQQ / NDX / NQ; DIA / INDU / YM; the Russell and TF futures; and the list goes on in bonds and commodities. For example, showing the SPY / ES / SPX all below. 

SPY looks more like lifting from pivot support. However, both the ES and SPX look like small blue bars (weak buying) which changes the picture. Weak buying from support is more vulnerable to a break just like weak selling above support increases the chance of a bounce. So if 2/3 of the variants are not clear, then maybe wait a day or adjust positioning in a similar fraction.

2. Volume
Check the volume bars on SPY and ES above. You can see that despite the first of the month which is often active, volume on both was low. In fact, both appear to the lowest volume up day of the year. Now judgement of volume can be more complex at times, meaning sometimes a volume spike is a turn and sometimes it takes divergence (ie higher highs in price with lower volume, or lower lows) but low volume buying is just not what you want to see on a bounce if you are playing for higher.

3. RSI
There are a lot of technical tools out there, but I had to add one it would probably be RSI. I know lots of people use MAs, and they can be somewhat useful, but once you start looking at different timeframes there are MA lines everywhere. Check this hourly chart of SPY and RSI on Friday and Monday was the highest it has been since 12/28. Not a great place to buy in a overall down trending market. 

4. VIX and other safe havens
I like pivots on VIX quite a lot. On VIX, it indeed dropped from the FebP which does look bullish, but bang on to the more important Q1P. So a reason to perhaps wait one more day. XIV really nailed it this time, with resistance bang on the FebP. In other words, using VIX you had a sign of caution (ie don't buy stocks with VIX on larger support) and using XIV you would have correctly NOT changed positioning (either by adding longs playing for a bounce or reducing shorts / hedges). Additionally, sometimes TLT or other bond vehicles can help confirm stock positioning.


5. Watch correlated assets
Obviously there has been a lot of selling pressure due to oil and China this year. Yesterday, oil was down about 7% and below all pivots while stocks were fractionally up and most barely above FebPs. In fact, the broader market only stabilized when CLH6 held its YS1 on 1/20-21. China in the form of Shanghai Class A index (what is available on tradingview) and FXI both below all pivots. In other words, factors that have produced selling pressure were still clearly vulnerable as of Monday. 

Gold follow up

Last week I noted on the blog that GLD might be putting one of the best weekly bars in quite some time. The weekly bar doesn't become official until close, because theoretically it could have jumped above a level and closed well under it keeping the downtrend intact. But that didn't happen, so let's check it out again.

If you are really interested in this idea, first I suggest checking out that prior post and check how $GLD looks in a strong uptrend like 2009-2011. It jumps above major pivots and or lifts from them as support, then runs. That isn't happening quite yet because it is still below the all important YP (orange crosses).

But it did clear the 1HP (orange dots) and that is potentially a big deal, because it has been below major pivots for so long. So what can happen from here? 

1. Most bullish, continue to rally or pause just slightly at the YP, then rally from there.
2. Some bullish, rally up to YP, drop but still hold the HP, then in more time clear the YP.
3. Sideways, stay congested between the two major pivots for a while
4. Some bearish, give up the gains and break under the 1HP again.
5. Most bearish, quickly return to status of below all pivots.

Now let's turn to the daily chart for more information with the medium term quarterly and monthly pivots turned on as well.

Ah ha! Now we see the current FebP at 105.78. This means 3 pivots are in the 105 area: 1HP 105.22, Q1P also 105.22 and the Feb P. Easy hold above that support cluster at 105. Next would be to watch reaction at resistance at the YP. People putting money in the market might also want to check the futures, both GC1 continuous and current contracts, as occasionally the futures will often confirm or question a setup on the ETF GLD.

A long term investment strategy is to be partially long when an asset is above one of two long term pivots, fully long or leveraged when above both, and out, short or hedged when below both pivots measured from weekly close. On this basis, $GLD put in a partial buy as of 1/29 close. While a fund could do their transactions right there, an individual wanting to check charts once weekly on the weekend would likely be buying on the open today which due to the gap is higher than Friday. Still, the open at 107.54 is just a little over 2% above the 1HP which is not bad risk/reward for a long term position. If breaks on a weekly close then the position is closed. If it rallies above the YP with a look of support, then add. 

 

 

Weekly charts - USA main stock indexes

Showing weekly charts with long term pivot levels (yearly and half-yearly) for what I consider to be the 5 main USA stock indexes / ETFs:

SPX / SPY / ES
NDX / QQQ / NQ
INDU / DIA
RTY / IWM
NYA

SPX recovered YS1; SPY and especially ES have the look of lifting from the level as support. Also note lows the last few days bang on the level 1866 which I was mentioning all week in the daily SPY comments. But still below the major YP and HP levels by quite a lot. In my view, big levels definitely used for short covering, perhaps speculative buy, but no big investment buying until above at least one long term pivot level. 

NDX held its YS1 exact and this was pretty much what stopped the crash. Although QQQ levels "should be" like NDX, due to the 8/24 low they are quite different. So QQQ did not even reach and YS1 level although the cash index did; and very close to recovering its YP although the case index is quite far. The futures NQ also reached YS1 and held. Bottom line some programs may check in with QQQ above the YP / 1HP combo, but anyone buying should keep sharp eye on the NDX and NQ pivots to confirm.

INDU held YS1 / 1HS1 combo and decent bar up from there. DIA almost same look. 

RTY and IWM held YS2 / 1HS2 combo and now heading into YS1 / 1HS1 level which might be resistance. 

Last but not least, the NYA held its YS1 / 1HS1 combo as well. 

All of these, along with many other stock indexes / ETFs, held yearly and half-yearly levels in the past weeks. Most of these will open below February pivots, so we'll carefully watch the medium term levels (quarterly and monthly pivots) to assess the strength of the bounce.

Bonds

Another reason I like pivots so much is that this tool is working on all asset classes: stock indexes and individual stocks (especially higher volume stocks), bonds, currencies and commodities. Let's look at bonds. Depending on your focus you might be looking at TLT, the actual interest rate vehicles like TYX and TNX, or the bond futures ZB and ZN. Let's check them all!

To start here's a weekly chart with long term pivots only (year and half year). After droping sharply in 2013 with the rejection of the 1HP and YP in early May, TLT first recovered a long term pivot level in early 2014 and rallied from there. Eventually it recovered its YP and had a huge run all the way to 1HR2 top in early 2015. Although the YP broke for about 4 weeks, it was able to recover and hold a few more times. 

I point out these histories to understand the long term motion of the market using pivots. TLT started the first week of 2016 with a clear lift from the 1HP. Stocks were looking ugly and this was clearly the only thing that was giving any decent buy signal (except inverse stock ETFs). The next week the 1HP held as support, and jumped above the YP. Although it had a possibly toppy reaction from the 1HR1 in red dots, the YP held as support and as I type TLT will likely close higher. 

Now here's the daily chart view with all pivots. 

Don't say the market didn't give you a chance to get in. There 5 days in early January there TLT was clearly above the Q1P and 1HP combo with the YP much higher as resistance. This was a good risk reward entry because you had 3 pivots all just below as support and the first real resistance considerably higher. 

Let's just say if you are a long term investor without using leverage, I would look at weekly charts once a week on the weekend and focus on the closing bar. This meant a buy after the close of the first week, ie open on 1/11.

If you are going more trades and watching the daily chart, you could have been buying on 1/6 at the close, the first day above 3 pivots. Both could have been adding as the YP held as support although admittedly there was concern with the rejection from the 1HR1. If not adding though, definitely a hold above the YP because you could start thinking YR1 which is much higher. 

Now, more quickly, do the other vehicles confirm these entry and hold decisions? 

TYX below 3 pivots on 1/6 but no clear rejection; some red the next day. 

TNX clear sell bar on 1/6 (ie TLT buy). 

ZB congested for 2 days and clear buy on 1/6 and nice smooth trend up. The only selling was the JanR1 on 1/11 which was quickly answered the next day with a big rally. The discrepancy with the futures is that it already reached its YR1 level were TLT and TYX / TNX are nowhere close to yearly R1 / S1s respectively. This is because the futures aren't looking back for the full year; this is annoying discrepancy of the method but programs are still positioning off these levels. 

ZN also jumped above 3 pivots on 1/6, and you had a chance to buy there or the next few days. 

Back to TLT. TLT already has a high on 1HR1 exact on 1/20 which was the date of the stock low. That is a major resistance level and important to watch. But if the YP continues to hold as support, that is even more bullish because it will mean TLT is above all pivots. Trust me, there is not much to buy right now that is in that category (ie above all pivots). Maybe we will see Q1R2 at 129.80, or even what would surprise everyone is a big bond rally back near the 2015 highs to YR1 area at 134.42.

NYSE Composite

I like this chart as an institutional index even though it doesn't have the active trading vehicles like SPY / ES for SPX, QQQ / NQ for NDX, etc. Also, there are lots of ways to check breadth but using pivots it would be through NYA or combination NYA and Russell / IWM. Let's check it out.

The first chart is weekly with yearly and half-year pivots only. So easy to see solid uptrend from the second half 2012 when it jumped above both pivots (orange dots) and from there all above pivots until September 2014. That came back, then the YP / 1HP combo was able to hold again in early 2015. However, unlike 2012, 2013 and 2014, it never reached a major resistance level. Soon after that we see a break of the 2HP, then a massive break of the YP; from there the YP was clear resistance. This was a big tell for the start of 2016. NYA dropped very quickly to YS1 / 1HS1. 

Here's the daily chart view with the quarterly and monthly pivots added. The YS1 (thickest green cross) broek but recovered, and has held for two days in a row. But at the same time, the 1HS1 level (larger green dots) has been resistance for 3 trading days. 

Main point: NYA YS1 is part of the picture of yearly levels that will need to hold for markets to put in a better bounce. As I type ES and NQ are still holding their YS1s at 1866 and 4130 respectively, but without participation from NYA chances of a strong bounce diminish. 

Other tools

Obviously I'm a big fan of pivots. What other technical tool gives you trend status, entry, management and targets all in one package? But sure, I look at moving averages and their slope too. Often pivots give the signal first, but when there is combination then it is an even better setup. So, what else to use with pivots for more effective returns?

1. Volume. While not always a lock, a higher volume move off a big tends to work.

2. RSI. It takes some art to use this but i had one momentum indicator this would be it.

3. Sentiment. I prefer a combination approach of standard put-call, ISE and both the AAII Investor and Manager readings. So here's the point:

The ISEE index was 146 at the close on 1/26. That is far too high considering when everyone was looking for Santa on 12/24 it was 144, and the spike high for the last six months was 187 on 12/15. Anything near 150 is toppy and has been near several key trading highs the last two years. ISE readings pointed to people being overly bullish and complacent and the result was a very ugly January. Yesterday everyone thought the market would rally on the FOMC, and today the market looks like it may threaten the 1/20 lows. 

Gold

As most market observers know, gold put in a phenomenal rally from 2002 to 2011. GC1 futures data shows about a 650% rally low to high. But since then a lot has been given back, about 50%.  In this ever more digital age, will gold ever regain its luster? (Sorry.) Using pivots we don't have to guess. Let's look at the long term levels when gold was in a decent uptrend versus the last few years. 

To make it simple I am showing only the YP (yearly pivot) and HPs (half-year pivots) without any support or resistance lines on the GLD weekly chart. As you can see 2009 to 2011 was all above pivots with each touch a perfect buy chance or hold. 

Then something changed in 2012 and that was a break of both the HP and YP. It was able to recover, but then put in a lower high. The start of 2013 showed trouble from the start with a clear rejection of both the 1HP and YP. This is often (not always) a bearish sign in the market, and sure enough 2013 had a big drop. 

Even if you thought bankers were destroying currency and wanted to own gold, pivots showed to be less allocated or better out of any asset that is below all pivots. If you restricted your buying attempts to weeks above a long term pivot, then 2013 in and out, 2014 and 2015 a few tries that would not have cost much.

There hasn't been any buy signal at all in more than a year, as GLD has been completely below long term pivots from February 2015 to recently. 

GLD did close a bit above 1HP the first week of the year, but not with a look of support. Also, the futures failed so given the trend there were two reasons to wait. With 3 trading days left in the week, it is possible that gold is giving the best looking long term buy bar in about a year. 

Very simple: if the move is for real then gold stays above the 1HP and will then clear the YP. If the YP smacks it down and it breaks the 1HP, then the trend is still down. It could stay congested between the YP  and HP for a while, although that is a tight range which will break one way or the other at some point. 

Now let's zoom into the daily chart with all pivots. Look at at the October bounce. If you bought 10/2 , the first day above a quarterly pivot in months, then you had a chance for gain or the worst case small loss when exiting early November. Note I am not even qualifying this as a long term buy, because GLD was not above a half year or yearly level at the time. 

GLD has been above the JanP after being below monthly pivots for 2 months straight, and now this is the 2nd time above the 1HP / Q1P combo (hard to see because same level) at 105.22. Above that is bullish because now a market that was very beat up is suddenly above 3 pivots. Then the all important YP is not far and may test.

Does this look like a buy?

The last few blog posts put forth very extensive reasoning why I thought the markets might be making a big turn, but not a big buy. Basically, my logic boils down to buying what is above pivots and avoiding or shorting what is below pivots. And despite the strong bounce, there is no stock index or ETF above any pivot yet (except safe havens TLT, GLD and inverse ETFs). 

Due to pivot structure, QQQ has the best chance of any stock or index ETF to reclaim its YP (again, other than safe havens TLT, GLD and inverse ETFs). This is how it looks today. Does this look like a buy? Nope! Crystal clear rejection from the YP today, which is potentially very bearish in this kind of market. 

QQQ pivots only chart below shows all pivots (Y 1H Q1 Jan) but no R or S levels. 

Oil again

Check out this blog post from 1/19: "CL1 is now approaching 1HS1 at 27.89 and then the all important YS1 at 26.69. This area will likely have to hold for stock indexes to stabilize and bounce."

Where was the low? Mostly on the 1HS1 level with dip below but close above on 1/20 then up from there. On the current contract the low was pretty much bang on YS1. This low may need testing. The levels to watch are listed; both charts below. Also including USO which looks more like CL1; I think the current futures contract is giving the best signals but still the others could be worth watching. 

CL1
Q1S1 30.58; best to stay above this, but only medium term level and longer term more important
1HS1 27.89; 
YS1 26.69
If YS1 breaks then Q1S2 is 24.12

CLH6
1HS1 29.45
YS1 27.89
Q1S2 26.02

USO
1HS1 7.82 (not tagged yet)
YS1 7.18
 


Big levels

The amount of indexes or ETFs that turned from long term levels - by this I mean yearly or half-year pivots - is rather amazing. These weeks are rare. The odds favor more on the bounce, but how far it gets we shall see - and use the shorter term pivots, especially the FebPs which will be in play in about a week - to gauge the strength. Of course all the levels below that broke and recovered by the weekly close will have to hold.

All charts weekly with year and half-year levels only (no quarterly or monthly). Listing comments first, then the charts. If you get confused to which is which, look for the light grey watermark of sorts identifying the index / ETF.

This post has gotten quite long, and I still didn't cover two categories - currencies and commodities namely, oil. I will do another post on that soon, but check the recent blog post on oil that pointed to the key level YS1 a day before the low!

USA mains stock indexes & ETFs
SPX / SPY / ES - all broke YS1s & 1HS1s, but recovered on close (hard to see 1HS1 on chart b/c so close to YS1)

NDX / QQQ / NQ - low on NDX near exact, QQQ disparate structure ie not on YS1, NQ more like ES

INDU / DIA - lows on YS1 & 1HS1 combo

RTY / IWM held YS2 / 1HS2 combo area. (Note: these two charts added on 1/27.)

NYA - recovered YS1, but still a fraction under 1HS1

USA additional stock indexes & ETFs
IBB - weaker bounce off YS1

SOXX - better move up from 1HS1. The Pivotal Perspective prefers SOXX over IBB here.

XLE - also YS1 low and recovery of 1HS1 

XLF - I don't know what to make of pivots this year due to massive 8/24 spike, so not showing here

Safe havens & risk indicators
TYX - just slightly below its YP; recovery would put in back in congestion zone above YP but below 1HP; below YP remains bearish yield and bullish bonds. 

TNX - rebounded from 1HS1

TLT - high on 1HR1 near exact

ZB - high on YR1 / 1HR1 combo, but could be pause and not rejection.

ZN - also high on YR1 / 1HR1 combo, but also perhaps pause and not rejection.

HYG - low on 1HS1

VIX - poked above, but did not close above, the YP for the last 2 weeks. decent reversal from the YP although some may point to closing below the low of last week as confirmation, which hasn't happened yet.

XIV - near test of YS1, no official tag however

GLD - rather awful that GLD could not climb above 1HP in all the turmoil

Global stock ETFs
EWJ - held YS1 and 1HS1

EWG - held YS1 and 1HS1

FXI - holding 1HS1 but not much green 

EEM - similar to FXI

PIN - low on 1HS1 exact

RSX - low on YS1 and decent bounce along with oil

ACWI - global benchmark ETF, also low on YS1 & 1HS1 combo




A turn, but not a big buy

What? I'm writing this post to clear up any confusion from the last two posts. Here, I said best to not be thinking buy, because everything is still below all pivots; and then more recently, pointed to all the YS levels on the turn. I'll admit this sounds contradictory. 

First point: if you are going to try to catch a turn, a day where you see multiple main indexes testing and holding, or breaking and recovering, yearly levels is one of the best ways to try. That said, although quite tempting to catch the bounce if you have money on the sidelines (hence the term, speculative buy), I think there is a better way of using pivots and that is to stay with the larger trend. Here are a few nifty chart examples to drive home this point. 

The first one below is a weekly chart of IBB showing only the yearly, half-year and quarterly pivots. Pivots always in orange on my charts. As you can see, it was above all pivots the vast majority of the time from 2012 all the way to mid 2015. This was one of the best trends in the market. In fact, focusing on biotechs above the other USA sectors would have led to spectacular out-performance. 

But all that changed in 2015 second half when we finally saw not one but 2 weekly bars of decent rejections of the Q3P then a huge break of the 2HP. This was a massive change in the market. The prior 3 years, any touches of the 2HP were perfect buys, if you even saw the level. Often enough the pullbacks were to the QPs, and I'm not showing the MPs here. 

So using this basic identifier - above or below pivots - kept you on the right side of the trend. When the asset is above all pivots, focus should be on locking in some gains when it reaches the R levels, then buying back on pivot support. Or simply holding until a real trend change which was pretty clear in mid 2015. 

Now let's flip it around and put only the R (resistance) levels in red. If you thought biotechs were overvalued and you were trying to short, you would have had 1) daily migraines and 2) missed one of the best uptrends in the market. Sure, you might have caught a few of the pullbacks in September 2012, May 2013, early 2014, then again in 2015. But a lot of false starts, scratches and stop outs too; and the best possible short setups would have paled to the possibility of gains. That is, until we started seeing IBB below pivots in 2015. 

So here is another one with gold. If you focused on the short or at least avoiding GLD below pivots, then it was very easy to stay out of this asset in 2013 and most of 2014-2015 as well. But if you were a gold bug, trying to buy the downtrend on S (support) levels in green, then you have the same situation of trying to short IBB. Here and there you catch something, but the stops and headache factor, not to mention missed chance on shorts, far outweigh any possible gains of buying and catching the short-lived bounces.  

Now let's turn to the more familiar SPY. It had quite a run of above most pivots most of the time from 2012 to mid 2015, but then that changed. No one really knows if this is a 2011 style pullback or 2008 meltdown, or something in between. The point is buying S levels looks great when it is also above most pivots; then looks horrible when it is below. 

In 2008 if trying to buy SPY, then you are buying 1/14 week at YS1 maybe, then definitely 1/21 week at YS2, again 3/17. Now all those could have had some gain. But if you started to think that buying the Supports was the way to go, then you were also buying in August and September right before the meltdown. After a huge drop you finally get a winner in 2009 but you know what? Pivots started partially buying in April 2009 (above Q2P) after being completely out of the market or short from mid June 2008. I'd rather forego the chance of bounce gains against the trend, and focus on making money with the trend, instead of getting caught in the counter-trend game. You just don't know when you are trying to fight 2 years of IBB rally, or buy before a crash. 

I will change my tune if QQQ recovers its YP next week, ie add back. But I'll use that area as a stop and then look for follow through above the NDX YP.

 


What has turned the market

Whether this is the low of the year or some bounce only to go lower remains to be seen. Recent blog posts pointed to 4 YS1s and a YS2 on NDX, COMPQ, INDU, RTY and CL. Here they are. 

NDX held YS1 near exact
COMPQ broke YS1 intraday but closed above the level
INDU also broke YS1 intraday but closed above the level (barely)
RTY nearly tagged YS2 (about $6), 1HS2 also helped and had decent rally
CL (both H6 shown and CL1 not shown) held YS1 near exact

SPX / SPY / ES didn't really help as those were still looking vulnerable. NYA also was below YS1 as well. On both of these the level looked like resistance. This is why I like to check the main USA indexes as a group and decide from there. 
 

Thoughts on when to buy

For the average reader, likely focused on USA stocks, the big question is this a buying opportunity. 

The Pivotal Perspective view is to own what is above pivots and short what is below; and if you are adverse to shorting, then just don't own it, or hedge. Though my focus on the daily SPY is the main USA indexes, there are ample opportunities via ETFs (and futures for the funds and pros) on global stock, bond, commodities, and even the currency markets. So if you were really following this method, you would not be sweating this drop because you'd have shorts in IWM from 12/30-31 or worst case 1/4; longs in TLT from 1/6; shorts in oil from 11/4/2015 (below all pivots from that date), and your choice of shorts in FXI, EEM, RSX, and EWZ as all of these have been below all pivots from various points in November or early December last year.  And the most important point, you would have been reducing USA long exposure and/or hedging from 1/4 to 1/7.

Back to the buying question. First of all, my view has been clear: "Bear for real with NDX below its YP at 4373." 

That said, there are times, namely August 2015 and summer 2011, when some of the major cash indexes at YS1s have been great buys. The thing with both 2011 and 2015 is that NDX held its YP (in the case of 2015, not one hour closed below) and in 2011 NDX had a 2 day slight break then recovered. Not the case in 2016 - NDX had clear massive rejection of its YP. 

So you might pick off a low if buying YS1s, but the easier method is to focus on buying what is above pivots and shorting, hedging or avoiding what is below. This will keep you out of trouble. You might not pick off the exact low, but you'll have far fewer counter-trend trades and a lot less headache. For longer term investors, I would even say you'd want to see something above a quarterly level. 

In fact, if you followed this rule of only buying an asset when it is above a quarterly pivot, then you would have had gains or small losses at worst buying oil in 2014-15, gold in 2013-15, and XLF in 2008, and NDX in 2001-02. So perhaps the market will make a mockery of this method this time, but if you can avoid major losses in the worst downtrends and still get back in when the trend changes to up, then that is good enough for me. 

For traders, then as I wrote in the SPY daily post yesterday, ES above 1866 and NQ above 4130 could trigger a speculative buy, but whether that gives 1 day bounce or 1 week or is low of the year, who knows. If trying that first I'd want to see an hourly bar with volume close above and then quickly reclaim its weekly pivot. So far only 2 bars in globex have been convincingly above the level with 1866 acting as support, and to my eyes not really decent session bar clearly lifting from 1866. This could change in minutes, and that's the game of trading - you can always get out or get back in. 

Big turn?

If this is going to be a big turn in the market, here's what we need to see:

NDX follow through; 1/20 low on YS1 4007 near exact.
COMPQ holding YS1 4455; broke but slightly recovered by the close.
INDU holding YS1 15746; also broke and recovered, barely!
RTY needs to stay above 1HS2 / YS2 combo 966 / 952 respectively.