Interesting buy idea

Funny, I haven't looked at Bitcoin in months. Wait - i am not off my rocker. I'm just doing usual scans near the close for anything that has changed pivot status. I don't even look at the currencies every day, let alone BTCUSD. But check this out: 

Above YP which has clearly held as support several times
Recently above 2HP
Recently cleared Q1P on 2/14, along with FebP
Just held FebP as support for 2 days!

So, recent pivot status change to above all pivots! There is not many vehicles that qualify for this designation. Hold above the FebP and Q1P, cut on daily close below. 

To put the recent move in a longer context, look at the weekly chart. The times where BTCUSD has rallied above both the HP and YP have led to spectacular rallies in 2013. In 2014 and 2015 BTCUSD was below the YP, but in 2016 the YP has held and another launch could be underway. If not, it won't cost too much to find out.

Is a major low in?

I don't know. As explained here, It isn't my bias but so far multiple long term support levels have tested and held for several USA main indexes, or broken and recovered. Conversely, safe havens TLT and GLD reached long term resistance and have faded back down. So I have to consider the possibility of a major turn. 

Basically, is 2016 another first quarter major stock index low like 2014 (SPX lows 2/3 & 2/5) then up for most of the year - or  2015 (SPX lows 1/14, 1/15, 1/30, 2/2 then up for several months? Or is this just a bounce in larger downtrend for stocks, and pause in bigger rally for the safe havens? 

Here are some levels to watch:

1. SPX cash YS1 at 1896. NDX came back to recover its YS1  4007 last last week, and INDU held 15746 after a 1 day break last week, and RTY low bang on YS2 952 that held. So SPX needs to join in. Keep in mind SPY and ES futs already above their YS1 levels at 186.25 and 1866 respectively, but I think SPX cash will confirm the rest or prevent from going higher. Then we can also add NYA YS1 9350 to our watchlist; if this doesn't clear then breadth has not really improved. 

2. Oil. A lot correlated on oil these days, and CLH6 WP testing as I type at 28.95. Above that means more bounce possible, below means another test of the YS1 at 27.89 on H contract. 

3. Various other short term levels and RSIs on hourly charts. For example, SPY WR1 at 189.61 and the SPY WP at 185.35. Above WPs keep bounce hope alive; weak tags of WR1s and sharp drops would be the first sign of trouble, and or a fade back to WPs and breakdown from there. 

4. VIX. Despite the ugliness of the year, VIX has managed to stay below its YP / 1HP pivots both at 27.46 on a daily closing basis for all but 1 day. If VIX rises above 27.46 then this will probably confirm a breakdown in indexes. Conversely, VIX below the FebP at 23.84 would help point to or confirm a stock rally. 

 

Hold gold?

The Pivotal Perspective was all over the rally in gold. From my view you didn't have to think about it too much - an asset class that was below all pivots especially long term levels for much of the last few years was suddenly above 3/4 levels and bells were ringing. Here is a summary review post with links to the originals.

Also on 2/1: "If it rallies above the YP with a look of support, then add." Even if you bought the close of a massive rally bar, you were in at 112.32, although if buying that day above the YP then could have been as low as 109.75. 

So like TLT, the question here is one of management. The original buys 1/25-29 are very easy to hold, but what about the add? As of last week GLD was above its YR1 - OK very overbought RSI, but not rejected from the pivot level. Now there is a gap down that could be rejection. Exits are trickier than entries but I think there are a couple reasons to hold it. 

This move has been the best jump above long term levels since July 2012 and that was a high test attempt after a multi-year tremendous run. There was one attempt in 2014 that barely cleared the level and immediately faded; then another early rally in 2015 that lasted 3 weeks above the YP after tagging the 1HR1 for the high of the year. So this time *is different* compared to the last 2 years. 

Long term moving averages like the monthly 20MA and daily 400MA point to a similar conclusion (charts not shown).

Granted, it would be easier if the $US fell back under its YP at 96.48. That said, faith in central banks is not the same as last year. Their maneuvers, instead of looking like backstopping the market, are growing more suspect. This could increase the support for gold. Last, Goldman Sachs has been 5 for 6 on its top trades of 2016 and they are calling for a short today. So maybe that is a hold :)

On the daily view, you can see the drop under YR1 thick red crosses 118.98, but let's look at levels that could act as support. FebR3 is at 114.53 which would also be a possible gap support. Even though FebR3 is a resistance level, it has convincingly cleared and the nearest medium term level that might be support. 

Zooming into short term levels, GLD has been entirely above its weekly pivot since 1/20  to today - quite a run. One week holding the weekly S1 at 114 area would not be too bad. Let's see what happens. 




The Pivotal Perspective

I've been working with pivots for a few years now. I used to have all the moving averages, Bollinger bands, RSIs on charts and then I started noticing how often the daily and weekly pivots were on the turns and moves that mattered. Then I wondered - could there be a monthly pivot? I checked it out and was soon convinced. While I still like RSI, and Bollinger bands also can be helpful in spotting divergence, Pivots have been my number one choice for years. 

Again in response to recent feedback, here are a few key points:

1. The Pivot is a basic bull bear line; bullish above, bearish below. 

2. Support (S) levels indicate a possible low area; Resistance (R) levels indicate a possible high area. 

3. The bigger (ie longer) the level, the more important. This gives a clear hierarchy: year, half-year, quarter, month, week, day. I call the year and half year long term because these impact the market 6 months to a year; quarter and month are medium term; week and day are short term. 

These Pivotal key points give us a number of corresponding conclusions and strategies:

1. Best uptrend is a vehicle above all pivots, especially the long and medium term levels. While we can monitor weekly levels for short term moves, an asset could easily break a daily or weekly pivot several times over the course of weeks or months and remain in a screaming uptrend. Correspondingly, the worst downtrend is below all pivots. Sometimes there are no strong trends, and you can look for above 3 or below 3 giving more weight to the long term levels. 

Examples: Following this simple idea meant shorting oil without thinking about it too much in July 2015 (before that too, in 2014, but just selecting a few recent examples here), then again in November; buying USA especially QQQ early October, adding to full position mid October; shorting EEM, FXI, EWZ, RSX, PIN at various points last November; scramming from USA longs 1/4-7, adding shorts; long TLT 1/6 and adding 1/22+, long GLD in January too. There are others, but these have been the big moves. 

This doesn't mean you buy willy nilly or after a huge run. You are looking for times when the market changes pivot status and you can enter near the pivot ie change of trend and define your risk. Like on 1/6/2016 when SPY broke its YP targeting YS1 186 area, possible short or at least scram for longs. On the very same day TLT jumped above 3 pivots that were all clustered and an excellent buy signal. 

Changes of pivot status, especially when multiple indexes are moving the same way, is important in the market. Think USA indexes early January, on 12/29 SPY was above 3 pivots and was appearing to open 2016 above all levels; on 12/30 perhaps the next monthly was still a toss up; on 12/31 the 2HP broke on the last trading day, more important looked like the open would definitely be under the new JanP; then actually opened below the JanP and the Q1P in other words above 2 and below 2, long term testing but medium term down; 2 days later broke the YP and HP so "below all pivots" and then the breakdown followed, The same thing was happening in USA indexes across the board, and of course the weaker global indexes had already opened below all pivots.

After a correction in a larger uptrend, often the best choice for long is any vehicle that has held more pivot support compared to others. This kept you playing the long side in IBB, for example, 2012-2015, one of the best trends in the market. Conversely on the downside, EWZ was below all pivots from at many points in 2015. So despite bouncing from March to April along with oil, you didn't have to wonder too long where to put on some shorts - just scan for "below all pivots." 

2. Turns happen on R or S levels. If there aren't multiple indexes on pivot resistance or support, it probably isn't an important turn in the market. This saves a lot of mental energy, because can stop wondering if this is the day to buy or sell. No pivot no new position or position adjustment! So, R levels are potential profit areas on longs and S levels are potential profit areas on shorts. It is very tempting to short Rs and buy Ss, and once in a while this works, but really this is counter-trend and we all know the trend is your friend. Here is a detailed post on why it is generally better to buy above pivots and sell below, despite the temptation to short Rs and buy Ss. Note "shorting" and "buying" is much different than "taking profits" and "covering." 

Recent examples: taking partial profits on TLT longs near YR1, especially when it tagged the 1HR2 and dropped back under both levels on high volume. 

There are times an R level overthrows then falls back under (like Shanghai Comp YR3 in 2015), or an S level breaks and recovers (like INDU YS1 just last week) so a 1 day move is not forever. Overshoot and rejection is still a rejection; break and recovery is still a recovery. There are also incidences when a previously exceeded R level can turn into support, or a previously broken S level can turn into resistance. Think an index that had a nice rally above an YR1 to and YR2, then corrected and held the YR1 as support. Ditto in reverse for down.

3. The biggest moves are on the biggest levels. Sometimes you have to wait months for a yearly pivot move but this year almost everything delivered (meaning YP to YR1, or YP to YS1) in 6 weeks. Maybe we are about to have a huge turn in markets, or we will see YR2s.

4. Even if you are trying to buy a severe downtrend, you will avoid losing too much money by waiting for when the market is at least above a quarterly pivot. Conversely, if you are short a market in severe downtrend, you could hold a portion of positions until you see it recover at least a monthly pivot and in many cases a quarterly.

Same logic in reverse the other way; if you are trying to short a screaming uptrend, you won't lose too much if you wait for when the index breaks a quarterly pivot. You may have a break and recovery a few times, but still - example IBB, shorting only below a QP, kept you out of trouble and eventually gain a huge gain. Or if you are long IBB, then holding a portion until a quarterly pivot broke kept you in the trade for longer (instead of taking all profits on first tag of a big R level). 

5. When do pivots NOT work? When they chop. It is rare but it can happen. While it is common to see a few changes of status on major turns in the market - more on this in another post someday - once in a great while pivots chop excessively. For example, in year 2000 the SPX YP and HPs changed status 16 times on a weekly basis, where the average is just 4. Some years don't change at all. There was a similar sideways congestion chop fest in USDJPY for months from January 2014 to August on the 1HP until another decent move got going. So I think best to have some limit on reversals per the period you are trading, and if you have struck out too often just come back for the next quarter or half. OR, if one level is chopping, then get a combination of levels for your next entry. 

 

 

Important note on all my charts

Intro note: If you are new to my terminology please see the FAQ page and especially the video posted there.

Recently two different people quickly looked at my charts and had the same first reaction: are the levels that look so convincing on the turn still in play? It looks like they only go to the last trading day. 

Here's the TLT weekly chart with long term levels only (yearly and half-year). It does appear that the levels cease to be in play for the next week. In fact the turn looks so convincing maybe you think the level was generated after the fact! Not so!

The basic definition of a pivot is:

Previous period (High + Low + Close)/3 ; in other words, the average of the high low & close of the previous period.

And once that level is defined, that's it for the period! In other words:

2016 yearly pivot (YP) average of 2015 high, low & close
2016 1H pivot average of 2015 2H high, low & close
2016 Q1 pivot average of 2015 Q4 high, low & close
2016 Feb pivot avg of 2016 Jan high, low & close

And so on. Once the 2016 YP and corresponding support (S1, S2, etc) and resistance (R1, R2, etc) are determined, that's IT - they are fixed for the year. 

So the chart would more correctly look like this, with the yearly pivots in play already showing for all year, and the first half pivots in play until the end of June. We cannot draw the 2H pivots yet because they will be based on 2016 1H high low and close!

However, the script on trading view only allows me to show the pivot on the current bar, and I just drew in the solid lines manually (which I cannot do on every post). Maybe I will get this sorted out with a script that generates a line in play for the entire duration, but I'm not a programmer and this was accomplishment enough. For now, just know that when I say the TLT tagged 1HR2 (nearly exact on the high) at 135.16 and YR1 at 134.42 combo as above, those levels have been sitting there from the close of 12/31/2015; in the case of the yearly level, it will remain the same until the close of trading on 12/30/2016, and for the first half pivots, they are fixed and in play until 6/30/2016 at which point the 2H pivots will take over. 

This is what allowed me to have the 134+ target on TLT mentioned from 1/13, and the SPY 186 target from 1/6! This was simply and example of one of The Pivotal Perspective key points, above the YP means look for YR1, below the YP means look for YS1. This is a very good probability move and happens most of the time on most asset classes. In fact, nearly everything I follow has already delivered in just 6 weeks! 

Weekly strategy sum

Intro note: If you are new to my terminology please see the FAQ page and especially the video posted there.

There were quite a lot of long term levels that tagged last week, and I think the stage is set for some stock bounce. But what will it be? Decent rally back to SPY 193-94? Or lower high then breakdown? No idea, but here are some things to watch going forward. For USA main index charts see the last blog post here. 

1. The yearly levels that just held - so primarily thinking INDU / DIA / YM YS1s, RTY / IWM / TF YS2s, NDX YS1, need to continue to hold for stock bounce; then the SPX needs to get in gear and recover its YS1 / 1HS1 1895-96 as well, along with NYA / VTI also recovering yearly levels. And of course, oil as discussed here.

2. The safe havens had a huge week with TLT reaching YR1 / 1HR1 134+ target first mentioned in this 1/13 video, but everyone knows that does look a bit toppy. GLD, recommended several times, also jumped over its YP the first week of February and tagged its YR1 / 1HR1 combo 117-118. Lastly VIX and VXD both poked above YPs but closed below, a possible bullish setup. Basically if stocks are going to put in decent rally, we will continue to see a fade in the safe haven trades that have exploded the last couple weeks. If safe havens stay firm, for example, staying above the next weekly pivots,  and USA stock indexes cannot clear those, or reach a measly weekly R1 and then sharply drop, then the market could roll over.

3. Interesting vehicles to watch are anything that is poking above a monthly pivot. This is far from the case in any USA main or supplemental index, although if oil continues XLE will have the first shot. In world indexes, RSX will also pop on the oil trade and is just barely below its FebP as of 2/13 close, and selling in EWZ seems to have dried up with a much higher low forming and EWZ above its FebP on 2/13 close. That is probably more currency effect and DXY weakness, but could be squeezy.

4. Big picture point is stage set for some stock bounce, probably hinging on oil. But the vast majority of stock indexes / ETFs / futures are still below all pivots, and most save havens are above. So let's not get too cute with the counter-trend idea. The market is trying to fight off the lows - referring to SPX Oct 2014 low at 1821, Aug 2015 low 1867, Sept 2015 low 1871, Jan 2016 low 1812, Feb 2016 low 1810. But "there is no such thing as a quadruple bottom" and if this idea is correct indexes will put in a relatively weak bounce in the scheme of things then roll over.

5. If you've been following a Pivotal Strategy from the start of this blog, you would have been:

Buying USA indexes QQQ & SPY etc early October
Short oil and some global indexes like FXI and EEM at various points in November, possibly covering some of those shorts already
Short IWM if at screens 12/31 (but who was?)
Reducing USA significantly 1/4-6, possibly shorting there with YP pivot breaks; any tech long final out 1/7 with NDX below its YP and "bear for real" declared on the blog
Buying TLT 1/6, adding 1/22-28, possibly reducing the adds last week
Buying GLD 1/25+, possibly adding 2/4-5, now watching for profit taking signal on the add
Possible speculative buy on INDU / DIA as posted last week, but let's keep a tight reign on this

Now what? My bias is the final low is not in, because this year just not acting like 2014 or 2015 where we saw early weakness in January and early February then done and off to races. Also, as outlined here, I don't think a year long topping process means selling is over in a few months. This would mean playing a bounce lightly, look to add back safe havens on a pullback to monthly or even weekly pivot support. Probably a lot hinges on oil; if that continues, then stocks will put in a decent bounce, bonds will drop further, and oil related vehicles will obviously participate in a quick squeeze. I'll also keep an eye on VIX, because I think that has been subdued given market action. If VIX again lifts above its YP/ 1HP combo at 27.46 - which has poked above, but not yet closed above on a weekly basis -  then we'll probably also see a major breakdown of all the YS1 levels that have just held along with SPX low areas listed above. A breakdown will be very messy and could happen quickly, so this is a good time to watch the short term levels like weekly pivots on an hourly chart.

USA main indexes

Intro note: If you are new to my terminology please see the FAQ page and especially the video posted there.

The must read summary of the big indexes. 

SPX / SPY / ES
SPX needs to reclaim YS1 / 1HS1 combo
SPY level is lower due to 8/24 spike, and in fact 2/12 closed slightly above
ES also below but within striking distance of level 1866

NDX / COMPQ / QQQ / NQ
NDX YS1 actually hasn't broken on weekly close yet; big level to watch considering 2009-15? tech led bull market. 
COMPQ well below however
QQQ perhaps not best guide this year with big discrepancy in structure due to 8/24/15 spike
NQ well under YS1 

INDU / DIA / YM
All 3 of these clearly holding YS1s. Read this blog post for the importance of the INDU yearly levels. Holding here sets up bounce possibility, which is why I wrote about this speculative buy. 

RTY / IWM / TF
All of these are on YS2s. As RTY etc has led the USA market down, obviously the YS2s need to hold for USA stock bounce.
 

NYA / VTI
These are not exactly the same but similar broad composite cash index & ETF. NYA bit under YS1s, VTI more easily recovered. Watch these also to gauge strength of bounce if it happens. 


Yearly pivot promise

I have given a short talk at TSAA-SF Annual Round Up the last two years on pivots. The last version had 3 main points:

1. If above the YP, look for YR1. If below the YP, look for YS1. Odds of one of these happening are very good!

2. Nearly always, pivots on important turns in the market. No pivot, no turn.

3. Keep it simple basic strategy: buy above pivots, short or at least avoid below. This is good enough for great gains. In contrast to my spec buy post today, mostly better to avoid buying support and selling resistance, unless taking profits. 

So this post is about #1. We are only 6 weeks into the year, and #1 yearly pivot promise has delivered on:

SPY SPX ES
NDX COMPQ NQ
INDU DIA YM
RTY IWM TF
NYA VTI
IBB SOXX XLE XLF
ACWI FM FXI PIN RSX
NKY EWJ DAX EWG
TLT HYG TNX TYX ZB ZN
GLD GC
CL
USDJPY

That is quite a lot in 6 weeks! If a hedge fund had traded all these moves, it would be taking the rest of the year off :)


 

 

Speculative buy

Generally I am in favor of buying above pivots and selling below. Use S levels to cover shorts and R levels to take some profits. But sometimes the markets present good risk/reward chances the other way. 

INDU is reclaiming 2 long term levels, YS1 15746 and 1HS1 15817. VXD poked above its YP 26.79 and 1HP 27.14 and as I type back below. All the other yearly levels I have been mentioning the last two days here and here and here and here as I type are all resolving in bullish fashion. INDU is the only index of the main USA 5 to hold its YS1 (SPX, NDX, COMPQ, RTY) all broke. 

So if INDU holds its YS1 and 1HS1 into the close, along with VXD remaining below levels, i think a decent speculative buy setup. 

Tradingview.com only has index end of day data, so I"m typing this up with DIA at 159.24.

 

2/12 3:15 EST update. Conditions likely met for spec buy. If taking next week want to see DIA above weekly pivot and SPY above YS1. Spec positions better to use tighter risk control. Remember, despite the rally, right now DIA above only 1 pivot - daily. Not weekly, monthly, quarterly, half-year, or yearly. 

Oil

There is a funny story about this post. After the last one on the Dow discussing the possibility of a turn, I noticed some things on oil and started to type up this post. I wasn't quite finished when I went out with my wife for a coffee on Friday morning as is our custom. Returning less than one hour later, oil has moved up quite a lot. So this post will be Part I (before coffee) and Part II (after). If you think I am making this up, just check the charts - no rewind on data feed.

Part I
Obviously the decline in oil has been one of the big stories. I think it could be near a decent turn, but whether this is *the low* is hard to say. Maybe a bounce before lower. Still, if oil bounces then stocks will probably rally and bonds drop. 

CL1 weekly on YS1 / 1HS1 combo. Except a 2015 Q2 rally, oil has been dropping since mid 2014. 

Here's another view of the same exact thing with usual MAs, Bollinger bands and RSI. Note - this is the first low that is entirely inside the BB on significantly less selling volume, with RSI holding 30 this time instead of below. This is textbook Bollinger band and RSI divergence - the stage is set for a squeeze.

Part II

I return to this CL1 at 29 instead of 28 from the above post. Here is the daily CLJ chart. Nice divergence on RSI here too, just 1 day slightly below the YS1 and now above both long term levels. This is a spec buy or at least a short cover.


INDU and turn here?

The Dow Industrials index, or INDU, though common in the media, doesn't get as much attention from the pros. For example, daily volume on SPY yesterday 190M, QQQ 60M, IWM 53M, and DIA a lowly 10M. Futures are similar. However, from The Pivotal Perspective we need to consider the Dow as important as other indexes. Evidence all on INDU long term pivots over the last 10 years:

2006 key high in May on YR2
2007 low of year in March bang on YP, and *the top* on 2HR1
2008 major lower highs April and May bang on YP; July low on YS2
2009 *the low* on YS1 near exact
2010 key high April 1HR1, key lows May June very near 1HP
2011 major high in May on YR2
2012 highs March - May on YR1
2013 QE steroids year trend up no turns; YR2 support pullback low in June
2014 low of year on YP exact
2015 key low early February on YP exact, lows of year just under YS1 (INDU traded below YS1 for 3 days in 2015, and actually level held on each weekly close)

And since we here we are near INDU YS1 again, have to consider it as possible major support. Here's the chart. Recovery and close above YS1 15746 possibly bullish, even better to close above 1HS1 15817. Remaining below those levels definitely bearish. 

Other yearly levels in play are on the RTY cash index. Similarly, possibly bullish above YS2 952, then better above 1HS2 966; definitely bearish if remains below. So, if short on IWM from late December on best trigger or early January, or reshort from 2/1-2, possible partial cover. 


Also, VIX yesterday above YP & 1HP both at 27.46. So what's bullish for VIX (above pivots) is of course bearish for stocks, and vice-versa. 

Lastly, oil on both continuous and current contracts on the YS1s. CL1 YS1 26.69, 1HS1 27.89.

Volume shifting into the J contract, showing the daily chart here.

Lastly, TLT and other bond vehicles (ironically, ZN futs and TYX, charts not shown) each tagged yearly levels yesterday with some rejection. 

My bias is this isn't the final low for the year, but when we do have it it will be something like multiple yearly or perhaps half year levels testing and holding like potentially today. 

Gold update

Prior gold posts: 
1/27
"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." "Above that [1HP/Q1P combo] 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."

2/1
"Last week I noted on the blog that GLD might be putting one of the best weekly bars in quite some time." "Still, the [2/1] 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."

2/4
"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)."

Now let's look and see what happened. GLD W below with long term pivots only. Clear lift above the 1HP the 1/25 week was the first tell. Active traders were buying there, long term investors looking at charts over the weekend could have been taking partial positions on the 2/1 open. 

Here's the daily chart. Volume was picking up on the advance to the YP, a good sign. No rejection at all, next day above, then launch. Per notes above, full position. I think let this one run for a while :)

Sentiment

I did a very detailed sentiment post a week ago. Here's a faster version.

Sum: put-call and AAII managers NOT showing extremes despite market trading horribly. ISEE at extremes but that has been more bearish for quite some time, and reflected excessive optimism on 1/26-27. Lastly, AAII individuals, savviest of the lot, very bearish and deservedly so. Maybe there is less to protect, but I think we should see higher put-call at stock index lows as well as AAII managers more at bearish extreme. Loose interpretation is readings are not bearish enough! 

Put-call weekly chart showing a lot fewer puts than last September. This doesn't make too much sense to me, as the market has been much more bearish. Perhaps less to protect but still. 

Daily put-call just starting to turn up. Should be higher, really. 

ISEE data from 2005
daily spikes: 2/4 to 2/9 all below 75. The 1/20 low was 45 and 2/8 low 50 so that is getting down there. Excessive optimism shown by 146 and 139 readings 1/26 & 1/27 respectively.
10MA 98% percentile, bearish extreme
20MA 96% percentile
50MA 98% percentile
OK, all bearish extremes here.

AAII managers data from 2006
Actually higher than last week. 
83% percentile  is low side but not extreme

AAII invididuals data from 2005 - best of the lot, often correct
bulls = 99% percentile, bearish extreme, just slightly more bulls than 1/19 reading
bears = 92% percentile
bull bear spread = 97% percentile
bull 8 week avg = absolute low value

Timing the market

Most of Wall Street says it is impossible to time the market and don't bother to try. In some ways this is correct. It is difficult to time the market, and most people who do so, especially casually, will wind up losing money (or not making as much) by doing so. However, whenever we invest in any asset class we are making a choice or series of choices, and those choices are made in particular moments in time. If no one was "timing" the market, who was selling USA stocks for an entire year in 2015 at the highs? Clearly, someone who didn't want to be owning them in 2016. 

I believe it is possible to make informed investment (and trading) decisions about positioning using:

1. Technical factors - Hence this site, where from its inception at the end of September I have shown over the last 4 months a method that is doing a lot better than most. Long USA early October; short oil and short FXI, EEM, etc various points in November; reducing and then completely cutting USA longs early January, possible to short or at least fully hedge; TLT long and GLD long both in January. Not bad eh? (Any hedge funds interested in collaborating? I *have* done this sort of thing for a fund professionally for years you know. But some things end due to other reasons.) 

2. Fundamentals - Yes, I know fundamentals move the market. The kind of analysis I like to do requires a Bloomberg which I don't have right now. If anyone wants to provide I'm happy to accept :) Perhaps more on my fundamental ideas in another post.

3. Sentiment - I did a detailed sentiment study here on 2/4. This is admittedly a bit more "fuzzy" than the technicals (especially pivots, simply above or below without any question) and the fundamentals, where there are all kinds of price modeling techniques. That said, relative highs and lows in sentiment studies are often near turns in the market. This is possible to combine with pivots for superior results. But it does take some time to do this. And alone, sentiment does not give buy or sell signals nearly as reliably as pivots. 

4. Timing - OK, I'll admit, I've put a lot of thought into this project. Let's start with a basic version I had coming into this year with the NYA monthly chart. 

I just didn't think a market that had been up 6 years in total and a 1 year topping process would be done with a correction in a few months. Base case 1 year process to match the other moves would take us to weaker first half 2016. Now, I didn't expect that sharp a drop in the first days of the year, but who did? At minimum I thought the market was in a digestion phase and would not go higher until consolidating for a year. But pivots said to shift convincingly bearish on 1/6-7 so far remain very bearish. Also,  considering  the presidential factor of last years of second term president being shaky for markets (2000, 2008) and stage was set. Then add in FOMC, oil, China, etc. 

But here for those reading I will mention another proprietary timing model. It had a 1/19 turn in January (didn't discuss at the time), and anyway pivots made the rebound clear on 1/20, but for a date to have coming into the month that is not too bad. The next window is 2/11-15, but this isn't as strong a turn as 1/19. Maybe, if ES holds the FebS1 at 1908, we will get some kind of bounce; or a flush to next level Q1S2 at 1776 also possible. But remember, it is below all pivots and same proprietary timing model is expecting even more volatility in March.

So, timing model call - possible low area here 2/11-15, but with USA stocks below all pivots this is not the time to buy. It might be worth a partial exit on TLT or GLD, or partial short cover on recent adds from 2/2 (when USA indexes fell back under all pivots). Again, to repeat: proprietary timing says more volatility on the way in March regardless of any bounce we may or may not have here. But if a lot of FebS1s hold in this 2/11-15 window, or if ES flushes down to Q1S2 1776 and holds there, watch for a bounce. 

Partial TLT exit?

Entries are easy, exits are tough. If you decide to hold everything, you risk losing decent gains. If you take profits too soon, you can be right on a phenomenal move and watch the train from afar without you. So, I prefer taking some profits on a target and holding the rest. Of course, judgment depends on the market. 

Here's the daily TLT pivot only chart - meaning it shows yearly, half-year, quarterly, and monthly pivots only, without any support or resistance levels. This makes entry decisions very easy. You can see most of 2015 second half was quite mixed; it could not sustain any more above the 2HP, but the YP held has support several times. As of 12/30/2015, TLT was below 3 of 4 pivots and appeared it would open below all pivots for 2016; but a lot changed between 12/30 and 1/4 in the markets. On 1/6/2016, the status changed to above 3 of 4 pivots! It is this kind of status change near big levels you want to see for an entry. (And if you had any shorts from late December, these were clearly cut.) On 1/6/2016 TLT changed status on one long term and two short term levels all clustered for a great risk-reward. That said, it was below the most important YP so this would be a partial position. 

Then we were watching to see how the YP acted. No problem; one day partial pause and after that held as support. That was your place to add 1/22-28 up to a full position. This has moved nicely and now the question is when to take some profits.  

Let's look at the resistance levels. TLT cleared 1QR1 (smaller red crosses) without any trouble, and it quickly acted as support. There was more of a rejection at the 1HR1 (red dots) but crucially the YP held as support. Once it cleared the 1HR1 again, that level held. Now it has jumped above the Q1R2. The YR1 near 135, which seemed way out of reach when I mentioned it as possible back on 1/15, now looks very doable! The simple answer would be: TLT move catching everyone by surprise, very strong trend, hold for that. 

That said, RSI is the highest in a year on both daily and weekly charts, and that is why we should at least consider locking in some gain especially on the recent add. Here's the weekly chart with more standard tech indicators and MAs. I suppose I am a bit concerned about pro selling coming in with the high RSIs, as that can happen - although it was with stocks in a bull market.

Lastly, here is the pivotal reason for my exit consideration. The futures are giving very clear signals, and ZB reached at YR2; and ZN at Q2R2 showing some rejection. We could also use resistance levels that have already cleared as possible support; ZB 1HR2 and ZN MR1.

OK, for now:

1. Watch reaction from ZB and ZN resistance and support levels mentioned above; on TLT next up is the FebR1 area.

2. Watch how stocks react to their YS1 levels; several broke the last few days and may recover (which would probably be bearish for bonds.)

3. To be clear, only taking about a partial exit consideration at this point. Entry near 1/6 I believe best to hold until at least one pivot (probably monthly) breaks as support. But the adds taken 1/22-28 are a judgment call here. Let's see what happens. 

2/10/2016 12:40 EST update

Looks like a TLT hold. TLT pushing the FebR1 with no sign of rejection and may close above. ZB may close above the YR2 level, very bullish; ZN also right on the level with no sign of rejection. Meanwhile, SPY & ES could have reclaimed their YS1s but didn't; bearish action in stocks today. On a weekly basis, TLT is flying and looks like it could even go for the highs!


2/11 9:35 EST update: YR1 tag! Probably a partial take, but let's watch how it responds and the volume. This was target first mentioned from 1/13 with simple logic: if TLT started trading above the YP we could see YR1. Did not look likely at 124 and change but lo and behold 134.42 has tagged!

 

2/11 4:00 pm EST update: YR1 tag and high volume selling. Tough call here, not really a reversal since well above yesterday's low. But volume selling at 1HR2 / YR1 combo. When I mentioned this target on 1/13 it seemed far away - only 1 month! Anyway, from here you could:
1. hold all and go for higher levels
2. hold all until monthly pivot breaks
3. hold at least half (1/2, 2/3, 3/4, up to you); and sell if weekly pivot breaks
4. hold at least half (1/2, 2/3, 3/4, up to you); and sell portion near this YR1 / 1HR2 combo

Tough call here. On the stock side, RTY held its YS2, but INDU broke YS1 and VIX cleared its YP. 2/3 bearish. So, probably hold all. Like I said earlier, exits always tricky. 

2/12 12:20 EST update. Looks a bit different now doesn't it. Even if portion out with TLT back under its FebR1 , decent gains from entries 1/22-28. TLT weekly (long term levels only) and daily charts (usual setup) below.


Goldman Sachs vs The Pivotal Perspective

People who work at Goldman Sachs are incredibly smart, have advanced degrees in economics, math, etc, from the best schools along with the advanced certifications, and all the data and computer tools at their disposal. But their "6 top trades" for 2016, 5 have already gone bust. No, I'm not making this up!

http://www.bloomberg.com/news/articles/2016-02-09/goldman-sachs-abandons-five-of-six-top-trade-calls-for-2016

Meanwhile, following this blog:

1. Buying USA leaders ie NDX / QQQ and perhaps some SPX / SPY early October; as major pivots held and recovered. I was clearly bullish because it was obvious using pivots; over the course of 2 days 10/2-5 2015 SPY recovered 3 of 4 levels and triggered a buy. 

2. Shorting a choice of weaker global indexes EEM, FXI, PIN, RSX, EWZ in November; all of these below all pivots at various points, and they were frequently mentioned as hedges. Some of these probably have taken some profits or out, some holding still today. 

3. Shorting oil as early as 10/19, scratch or small loss near 11/3, shorting again 11/4-5 using simple strategy of a daily close below all pivots for huge gain. 

4. Reducing USA longs 1/4-7 (most of which bought early October) as pivot status went from likely "open 2016 above all pivots" to 3 of 4 to 2 of 4 (ie mixed trend, no reason to be big long) on the actual open due to gap, and breaks soon after that; 1/6 SPY short possible under the YP aiming for YS1 which delivered; and/or putting on new shorts via IWM. Any remaining tech longs cut 1/7 (because that was the last index to break its YP). 

5. Buying TLT or other bond vehicle 1/6+.

6. Buying GLD 1/25 and maybe GDX after that too. 

If you doubt these calls please see the featured posts and when they were written, or go back and read the blog and my daily SPY / ES commentary. 

So, take your pick. Simple and what works, or complex positions that depend on  economic theory. I'm not against economics, but there is a crucial difference between economics and markets in how they function. Also, notoriously, once everyone on Wall Street agrees that something has to happen, it doesn't. 

Currencies

Pivots work on these too. Usual big picture view with long term pivots only on DXY, EUR, USDJPY, AUD. 

DXY broke 1HP and testing its YP at 96.48. What matters here is the close of this week; above the YP probably bullish, definitely bearish below. Note DXY has been above its YP since clearly & launching in August 2014, so a break is an important shift in a long term trend. 

EUR mirroring USD here, with break of YP in 2014 then huge slide. So far above its YP for the first time since 2014.

USDJPY has been all above its YP since Abe came on the scene in late 2012 - what a run. The HP showed some weakness in 2H 2015 but the recent negative rate news led to a clear rejection of both the 1HP and YP which I think will be definitive. For now watch YS1 / 1HS1 combo at 115.41 / 115.75.

Lastly the AUD has been below its YP since 2013 with crystal clear rejection in 2014, followed by a big drop. Trend still down but recent low held 1HS1. It would need to clear the 1HP / YP area .7311 / .7496 to turn positive. 

Breadth

If time permits, I'll make this a weekly report. Instead of using the dozens of breadth tools, we'll just take a look at breadth using NYA / VTI for USA and then ACWI for global indexes.

NYA & VTI are not the same but closely approximate; NYA has a lot more past history but VTI on tradingview.com gives real time instead of end of day pricing. 

VTI currently breaking YS1 / 1HS1 combo, bearish. Next major support is significantly lower at 85 area. No RSI divergence on the lows.

VTI daily with medium-term (quarterly & monthly ) pivots added. You can see just one day above the FebP, a drop below, then a clear top and rejection. The last 2 days have traded below the YS1 / 1HS1 combo, bearish. Just below is FebS1 & Q1S2. While these maybe enough for a bounce or pause, I would be surprised if a drop of this magnitude and momentum was able to put in *the turn* on a quarterly ie medium term level. My view is recovery of YS1 has to happen, or we'll see 1HS2 / YS2 area down near 85. Additionally, there is nothing bullish about the RSI pattern here with several days oversold, bounce to 50 area, and straight back down. 

Interestingly ACWI is above its YS1 at 49.76. But below that opens the door to 45. 

Like VTI, ACWI only lasted 1 day above the FebP and once it tested the pivot again, went straight down to FebS1. For now, trying to hold YS1 and FebS1 combo just below. Next support is significantly lower. It will be interesting to see if other global indexes hold their YS1s. 

China

Maybe I am one day late to write about China :) I mentioned China indexes / ETFs several times last fall as portfolio hedges against USA longs for the simple reason that you had a pick of several emerging market index ETFs that were below all pivots, when only IWM was in similar condition in the USA. I'll write more about these soon, but for now let's take a look at China specifically. 

There is an ETF tracking Shanghai (ASHR) but due to a distribution and price adjustment we cannot use the pivots on that this year. Tradingview.com has Shanghai Class A XGY0 which appears similar to, but not exactly the same as, the Shanghai Composite. The prices are different, but the percentage moves line up exactly, so let's say good enough. Then we'll add FXI. EEM often trades in sync with China. Lastly as the Chinese currency has been in the news and a proxy for government concern about competitiveness let's take a look at that too. 

For the sake of brevity I'm sticking with the big picture weekly charts with long term pivots only (yearly and half-year). The interesting point is that all of these are above YS1s, and EEM and CNYUSD are even above 1HS1s. This is not the case with most USA indexes right now. OK, a lot of this is due to the huge drop the China related asset classes experienced in 2015 relative to USA; as the pivots are based on the high low and close, the yearly pivots are lower on these because of the larger differential between the high and low. But that was last year's move. It will be interesting to watch some of the 2015 beat up names as 2016 progresses.  

On the Shanghai, the first thing to spot is how well the long term pivots did on the buy. You had a try in early 2013 that eventually failed for a small loss; then you didn't have to even think about anything until July 2014 when it cleared both without any question and triggered a investment buy. The market went vertical and reached YR3/ 1HR3 combo which exceeded only 2 weeks, and that was the end of the rally. Rejection of 2HP in 2015 in July was a tell; then the low of the year was on the YP exact in August. But now it is below both the YP and 1HP like everything else. Due to the big drop in 2015, it has not yet tagged its YS1. So, 1HS1 broken but above YS1 at 2953. This will be a big level to watch going forward.

More quickly now, FXI: Currently below long term pivots, breaking 1HS1 at 29.94, hasn't tagged YS1 27.77 yet. 

EEM is actually above its 1HS1 28.12. If lower, then obviously YS1 26.73 next to watch. 

Lastly the CNYUSD cross. So far it is holding the 1HS1 exact as well. I don't know if pivots will work on this like other more widely traded asset classes. Also, was the currency a topic du jour or an issue going forward? Hard to say but we can keep it simple and say above the YS1 .1508 is more stable than below. 

"1/20-22 Turn but not a buy call" looking good!

OK, the title sounds like horn-tooting and maybe so a little bit. But the main point of this post is to understand why i was making those calls 1/20-22 and what has played out since then, both in terms of money and aggravation saved and then perhaps more important, other opportunities. 

First, on 1/20 blog post "Big turn?" indicated possibility of decent turn and what we needed to see. 

1/22 post continued to point out all the yearly levels that had just held, along with oil. 

At the very same time, I was saying not a big buy on 1/21. 

Then clarified this seemingly contradictory view with a detailed post here on 1/22, "A turn but not a  big buy." 

Now, if you have a 1 week time-frame that is really short term swing trading which I am not addressing so much here. For that you'd want to be using daily, weekly, and some monthly pivots - and yes, the week of 1/25 SPY held its weekly pivot for the first time since the last week in 2015, so that was a decent buy for that kind of trading. But for those with longer term horizons, any buys 1/20-22 would likely be now under water. 

But that wouldn't be the only cost! In fact, maybe you could take some small stop outs and it wouldn't be a big deal. If you are trying to catch bounces, the big S levels are where to do it. Although I think a better method is to swing trade the bounces when you get a good setup on the shorter term pivots (daily & weekly, sometimes monthly) and hold core positions aligned with longer term pivots (yearly, half-year, some quarterly). 

The main point of this post is to point out what you would have missed if you focused on trying to catch the bounce in stocks - which at this point, is counter-trend move according to The Pivotal Perspective. 

The charts below show why I focus on buying what is above pivots, and avoiding, shorting or hedging what is below pivots. If you focus on trying to buy support (S) levels, ie, what is below pivots, once in a while you pick a nice turn but you could just as easily have a year of headache. Stock indexes are below major pivots for the first time in years, as safe havens jump above. This situation may take several months to resolve, or longer! 

Now for longer term short positions, yes, those yearly level holds were good places to take some profits or hedge a bounce. This is equivalent to taking some profits on big R (resistance) levels in an uptrend. That said, just tagging those levels is not an automatic all out - not by a long shot. Often you want to continue to hold some shorts if the index continues to trade below all pivots. I'll address this in a separate blog post soon and point out some examples. 

So by trying to buy the stock bounce you missed entries that we might not see again on TLT, GLD and GDX all below. 

1. You missed a chance to add TLT longs as TLT held its YP as support 1/20-28. Showing long term pivots only here.

2. You missed a chance to buy GLD as it cleared its 1HP for the second time this year on 1/25, and possibly adding above the YP on 2/4-5. 

Even GDX got in gear with long term buys last week, first above 1HP on 2/3 then clearing YP on 2/5.