Thoughts on positioning

Potential use of this site and methods depends entirely on your role in markets, and then whether you are a more active trader or fund or long term portfolio manager or investor, as recently discussed here. 

If you are in the investor category, then the simple point of recognizing from the very first week of the year that stock indexes were acting in a way they haven't since early 2008, and acting accordingly, would now be looking quite good. Limiting or potentially even completely cutting exposure to stocks and buying the safe havens were recommended over and over on this site most especially 1/4-7 when the yearly pivots on all main USA indexes were breaking, and so far has been the right move. I understand this option is not possible for all participants, but from my view, there is no need to own an asset class in a long term downtrend (ie below both YP and HP), especially when that is coming after a multi-year run of being almost entirely above. And even a second breakdown of those levels to boot.  

But what if stocks rebounded? OK, if NDX reclaimed its YP or any other major index then I would have shifted back bullish. But that didn't happen. 

If you are in the trader category, either as an individual or fund, then there are a lot more possibilities. Use the calls and methods in a way that works for you. Today I wanted to discuss examples of how I am thinking about positioning. 

Let's start out by saying we have about 20 units so each is 5% of portfolio. I am not going to get into leverage possibilities here. This could be divided up into all kinds of ways. You could have done very well the past 2 years having 10 NDX and 10 IBB when max long. So just because I am saying 20 units doesn't mean 20 different things. But mostly I am thinking 4-5 major positions with 4-5 units each.

If you were following along, you would have been buying USA leaders (most likely concentrated in QQQ since NDX / QQQ was the only index to hold its YP on the August drop) in early October. Let's say you got up to half long 10 units. But there wasn't really a reason to be max long because there were global indexes and oil still below all pivots, as well as weakness in IWM and NYA. I pointed out short possibilities of EEM FXI PIN RSX and EWZ in November, but with their volatility might be thinking 1 each for total of 5. PIN would have been stopped out as it participated in the late December rally. I wasn't writing about oil so much in the fall, but it too has been below all pivots since 11/5 - and still below today! But maybe you took your gains on the 2015 low called here.

OK, year end you had 10 QQQ or some combo of QQQ and SPY; 4-5 emerging market shorts, and recently out of oil. If you were at screens maybe you would have thrown on IWM shorts 12/30-31, but at the time I was emphasizing the 2016 open above all pivots so let's not assume that. 

1/4/2016 open all of a sudden instead of above 4 pivots it is above 2 / below 2, really no reason for position at this point. Cut half and hold above the YP, so 5 QQQ, 5 shorts, 10 flat. 

1/6 there was a definitive rejection of SPY YP and on the same day TLT jumped above 3 pivots. You could have shorted SPY there full position 5 units or skipped the stock shorting and done a larger TLT position. To be fair, TLT was still under its YP at the time so a few possibilities. If short SPY 5 units then long TLT 3 units. If not short then 7-8 units long TLT. NDX definitely broke its YP on 1/7 so that was time to completely scram from any remaining QQQ longs. 

The crucial decision in terms of positioning is whether you want to short stock indexes. If so then by necessity less capital for safe haven longs. But you could just as easily skip shorting or do in a small way and own more safe havens. Hey, I have no problem being 50% long in the strongest asset class, TLT, and saving the headache of bear market rallies.

So safe haven concentration idea without shorting would look like this:
Early January 7 TLT, add to 10 above the YP. 3 out 2/12, then back in. 
Late January 3 GLD, add to 5 above the YP and/or add on GDX.
Then there was still room to play the bounce on DIA or emerging market indexes, probably up to 5-7 and not more was prudent, and now out of most of those. 

If shorting then you just have less TLT (so 5 instead of 10 as a max) and use those units to short, so:
1/6 5 SPY shorts, 3 TLT longs, 5 QQQ longs from Oct, 3-5 emerging market shorts mostly from November
1/7 QQQ longs cut. 
And so on as above for the safe havens. 
1/20-22 said turn and SPY target delivered, so probably out of shorts there. 
2/2 was clear rejection of FebPs and chance to re-short.
From 2/12+ we were playing the bounce. Would it make sense to go up to 10 longs ie 50% when stocks have reclaimed only a monthly pivot? Probably not. Probably max of 7 with 2-3 DIA, 2-3 EEM, 2 added 2/22 which were quickly cut. 

Between yesterday and today the FebP recovery attempt has failed and so if following along you would have been cutting most longs yesterday, perhaps holding some of the profitable DIA, and adding back some shorts. I suggested combination of USA on QQQ and XLF and also China since FXI didn't reclaim its FebP when others did. 

So approximately 5 TLT, 5 GLD/GDX, let's say 2-3 DIA longs if holding and some equal or more amount of shorts. And maybe 1 bitcoin :) This would leave you with 3-5 units flat in cash as well.  

Please do it your way but this is how I am thinking about it. 

 

 

Currencies

Weekly report if time permits on the major crosses. On all charts, I am showing yearly and half-year pivots (long term) on weekly chart and then daily charts with quarterly and monthly (medium term). 

DXY reclaimed YP & HP, bullish. 

Testing QP here, to watch. Back above would be bullish and possible long (above 3 / 4 pivots, and 4th expires end of month) but rejection puts it back into congestion, no trade. 

Similarly, EURUSD breaking back under YP and HP, bearish if maintains. 

But sitting right on the QP here so no position edge until we see reaction from that. 

USDJPY got smashed from the YP, broke the YS1/ 1HS1 combo, and back to 1HS2 / YS2 area. So major support 110-111.

You can see the QP 1 day recovery and subsequent rejection, back under all pivots as of 2/3. Down to Q1S3 here.

AUDUSD not moving that much, but below YP & HP.

QP rejection in larger downtrend usually good setup as short. 

GBPUSD has been in the news recently. From Pivots it has been clearly weaker since Q4 2015 under YP and HP despite trying a few times to reclaim. 

2/16 would have worked as a short, back under all pivots with clear break of FebP. 

Lastly BTCUSD. I was hoping for real run with lift above major pivots first time above both since 2013!

The high was FebR1, but let's see what happens. 

Weekly strategy update

Judgment based on the close, but for now:

ES needs to hold 1925 its FebP. Anything below that would be first warning sign of trouble.

Also, yesterday I mentioned that it would be better for VIX to confirm strength by dropping under its QP of 19.27. So far that hasn't happened. 

The point on both of these is that a bearish move back under SPY / ES FebPs, along with INDU / VTI would mean cut recent longs and add shorts. List of short possibilities means anything that stayed completely under its FebP without even tagging: QQQ IWM IBB XLF and possibly NKY / EWJ or DAX / EWG.

GLD - I may have erred on the partial take yesterday. To be clear, I pointed out gold in late January and that main portion I think is worth holding, but any adds after the YP clear on 2/3-4 were the judgment call. Above its WP 116.97 would be short term bullish; then if GLD clears its YR1 again then I think worth having a full position. To watch. I haven't talked much about GDX, mostly but not exactly correlated, then I mentioned yesterday that it was doing fine. 

RSX, EWZ, EEM. These are fading a bit today along with the market, oil and $USD strength. EWZ in particular tagged FebR1 and now back under. As I type ACWI is dropping back under its FebP, so a close under that level would help point to taking some gains off the table on these quick squeeze ideas. EEM more tied to China and it hasn't done too much. 

BTCUSD is pulling back from its FebR1. It would be better above, but if markets start to slide again, or trouble in China, then maybe BTCUSD will explode higher. Buy on 2/16 near 407 just cannot become a huge loss so i think worth giving it room.


Breadth

There are many breadth tools out there but here we just check pivots on the institutional indexes NYA (or VTI if you prefer) and ACWI for global stocks. 

NYA weekly below with long term levels only. Although there was a scare in early 2015 with one weekly close just under the YP, it was not clear rejection and quickly recovered. But August 2015 was another story with a huge break of the YP and clear rejection of the 2HP. The low was bang on 1HS2, but the failure at the YP in November was the tell, in addition to opening below all pivots for 2016. 

Now what? NYA has recovered its YS1 9350 and 1HS1 9424 twice, so as long as it holds above this support zone breadth is for real and market may continue recover. Back under these levels a third time, especially if we see a clear push down from 1HS1, would likely be very bearish. 

Daily chart showing medium term levels only. NYA was above the FebP on the first trading day, then fell below with the level acting as clear resistance for a few days after that. The result was a move down to FebS1 with a big recovery the next day. Yesterday's bar convincing recovery of the FebP, so medium term bullish above that level. 

Here's a very similar looking ACWI weekly. The difference between highs above YR1 / 1HR1 combo in 2015 1H with the strength of China, but equally clear breakdown in August. ACWI also managed to recover its YP briefly, but failed especially towards the end of the year with a clear rejection bar. 

This time it has held its 1HS1 / YS1 levels with breaking at all on weekly close; easy call more bullish above 50.47 / 49.77 respectively.

And here's the daily with medium term levels. FebP recapture looked good yesterday so very easy bull / bear line from here at 52.30, at least through the end of the month. 


Audience

This site is for anyone participating in the market! Use will differ according to your role and existing strategies.  

Most active
Agile long/short hedge fund
Individual trader with margin account

Both of these types of participants can take full advantage of Pivotal strategies with ability to short, with huge scores in oil and various emerging markets possible last year; as well as more flexibility in positioning, meaning capability to substantially change the portfolio in the futures markets or via 3x ETFs. This means more use of medium term levels like quarterly and monthly pivots. Also, precise turns on pivots give some opportunities for very good risk reward using leverage. Pivots give great indication of trends and when they change, and are often very clear on turns as I've illustrated many times on this site (just check the Featured Posts section).

Less active, more long term
Portfolio manager, long only
Strategist for wealth management company
Long term individual investor

For all of these types of market participants, would it have been helpful to have:

Pegged 2008 as a trouble year from the beginning, as all 5 main USA indexes SPX, NDX, INDU, RTY and NYA opened below their YPs and never recovered? (FYI, NDX, INDU and NYA tested YPs from underneath in April-May 2008 and failed to recover.)

Then shifted bullish as all 5 of these recovered YPs July - November 2009, and remained bullish based on tech strength *for exception of 2 days of uncertainty* in 2011, until 1/7/2016? That's right, from July 2009 market leader NDX was above pivots except for 8/19/2011 and 8/22/2011, which were slight breaks and not clear rejections.

Consider the very popular daily 200 moving average on NDX broke several times in that span, while NDX pivots held in all other crisis points including October 2014 and August-September 2015. If you pick another moving average, the weekly 100 for example, then you were in the market but only had 2 NDX buys in 2009 & 2011, whereas pivots gave several buy points on the way up.

So pivots are a great help to long term investors too! Save time and use weekly charts with long term levels only! 

And then consider possibilities in other asset classes, managing sector over-weights and under-weights, or simply save time on analysis:

Would it have been nice to be bullish gold 2002-12, excepting a few weeks each in 2004, 2005 and 2008 - then seeing clear trouble in early 2013 with a clear rejection of both long term pivots? 

How about avoiding or under-weighting oil & energy from July-August 2014 with clear break of the YP and HP and below long term pivots since?

Or stop wasting time on the endless rate move speculation and see that TNX has been below  a long term pivot (either YP or HP) for all but 5 weeks since the end of 2013? In other words, if TNX is below long term levels then you can just stop worrying about rates going up. 

So, if you are active there are more possibilities but if any category of long term then pivots are still the best tool I know to be on the right side of the market. In other post soon I'll discuss positioning thoughts for both active and long term strategies. 

Some categories of traders I am not directly addressing: 

Very short term players, going for intra-day or very short swings like 1-3 days. The method definitely works using daily and weekly pivots, but the moves are too fast to post about when writing on a site 1-4x a day.

Forex traders. I address currencies about once a week if time, and although pivots work this is just not my focus.

Individual stock traders. Oh pivots work fantastically well. In fact when investigating the method the pivot action on several popular stocks completely convinced me. I would rather spend my time analyzing the investing universe via ETFs than looking through 100 stocks. But if that is your thing, or if you'd like me to provide consulting services for your portfolio, then the method is quite valid.  

Weekly strategy update

Some charts on vehicles that I mentioned in the last weekly strategy report. Conclusions are obvious - USA reclaiming FebPs on SPY & DIA which is a mild positive. So my view of a Pivotal Portfolio is shifting a bit more bullish here. But a reclaim of a monthly pivot while being below the others is not the same as position long on an asset above all pivots (the only examples that I track this year have been TLT, GLD, GDX and BTCUSD). 

If you have been following along, there is  a speculative INDU / DIA position from 2/12 that is an easy hold and/or possible add (or SPY), and some smaller combo of the suggested emerging market vehicles RSX, EWZ, and EEM from 2/16 or what is left if you took some quick gains last week.

TLT is not getting hit too hard, but right now GLD looks more like rejection from YR1 area which, if appears this way into the close, I think is a profit taking signal on any add from 2/4-5. In addition, DXY has just held its YP and even reclaiming its 1HP which further pressures GLD.

SPY jumping above the FebP.

GC continuous contract making the rejection look clear (based on first hour, real judgment at the close), and this is really the 2nd time we are seeing selling from this YR1 area. 

Sure enough vehicles that led on the recovery of the FebPs are getting more pop on the bounce. RSX, EWZ and EEM here. Watch FebR1 on EWZ approaching soon.

Lastly BTCUSD had nice pop and already at the FebR1. Let's give this some time. So far pause no rejection despite DXY strength. If people want to get money out of China, a stable BTCUSD is definitely a way. So maybe there is another massive move on this. 

NKY and DAX

I haven't spent too much time on Japan or EU indexes although certainly they are not to be ignored. There are a few reasons for this: 1) TradingView were i have scripts for pivots has these cash indexes on data delay, and unlike USA indexes the ETFs are quite different in structure due to the currency impact, and 2) these are quite correlated with USA indexes, and I think 2015 where USA was mostly flat and these two QE markets were up was an outlier year. 

But since these markets still have supportive central banks they are probably worth watching for larger understanding of the markets. For anyone actually positioning in these assets, of course currencies will impact as well so useful to watch pivots on the DXY, EURUSD and USDJPY.

Let's check with my usual approach of long term weekly charts then a closer view on the daily. NKY cash made it to YR2 in 2015 but could not maintain gains and eventually had very clear rejection like everything else in summer 2015. After a comeback, NKY opened below the YP / 1HP combo and had sharp drop, bounce attempt at the YS1 / 1HS1 like most other vehicles, but then a plunge to much lower lows down to 1HS2, though YS2 remained untagged. Keep in mind most USA indexes held YS1 / 1HS1s, and only RTY / IWM was down to YS2 area. All charts are showing data as of 2/19 close. 

Here are medium term levels only, meaning quarterly and monthly levels. You can see clear rejections at the Q1P and then at the FebP. The low was very near Q1S3.

And here are long term and medium term levels combined. The cluster of pivots on the open was a clear cut, hedge or short; and the rejection below the FebP was about as clear as it gets as well. Note a combo of pivots on the low, 1HS2 and Q1S3. 

Sum: unlike most USA indexes NKY is still below YS1, and this level may continue to act as resistance. Also unlike USA indexes that are reclaiming FebPs as I type, it is very unlikely that NKY will change pivot status this month. 

DAX made it up to YR3 last year, and lows were bang on the YP in January, August and September. The 1HP recovered but then broke again, like many risk assets DAX opened below its YP / HP in 2016. So far one week below the YS1 and recovery, but needs to clear 1HS1 to confirm strength.

Daily chart with medium term levels, still below all pivots. 

And now combined. Holding YS1 large green crosses is the most important thing to watch at this point. 

Weekly strategy sum

If you are new to my methods you might want to read the last strategy sum and/or the recent review. 

Last week I was expecting a bounce and that delivered. Per my view of the market and timing model, my bias is for breakdown in March but I have to respect the bullish action on long term levels last week. It is easily possible that indexes go higher and the simplest strategy is to watch the FebPs that are nearest in play on SPX / SPY / ES, INDU / DIA / YM, and NYA / VTI as posted here. I really don't have an opinion on direction for the coming week and will let the FebPs decide. 

If the market shows strength then I might say reduce safe haven trades and add more longs (but only what is above a FebP); but if it shows weakness be ready to pounce by adding shorts or safe haven positions. A breakdown from here could be very fast and messy. 

Based on oil, a breakdown looks more likely. But various VIX indexes are appearing more positive, and it is my experience that VIX if often correct. We'll see what happens. More specifically:

1. In 2016, following The Pivotal Perspective would have reduced then cut (or at least fully hedged) USA stock longs, possibly reversing short, early January 1/4-7, while buying TLT. TLT then added after clearing the YP, and probably took gains on a portion of that at the YR1 / 1HR1 rejection. Basically we are monitoring the TLT position and deciding whether to go back to full strength or continue to hold the portion. If you took USA index shorts, then the YS1 holds, turn alerts 1/20-22 and 2/12 along with the INDU buy were good cover areas. 

2. Likewise, GLD was mentioned several times before the big jump, with an add 2/4-5. I think the first buy is definite hold but watch the YR1 area this week on the ETF and futures to decide on taking some profits or not. This move likely corresponds with main stock index decision at the FebPs. Also might be worth keeping DXY in mind here, as DXY is again testing its YP. A second break should help support the GLD idea. 

3. If in the INDU / DIA speculative buy, then obviously we are watching the reaction from the FebPs. If that clears across the board we could add, but if rejection then cut and take the small gain. I don't want to get cute with the counter-trend. Best gains are made long above pivots and short below. If still in the emerging market longs from last week - RSX, EWZ, and EEM all mentioned as possible buys above FebPs - and of course they have to stay above FebPs to remain valid. Again let's not get too cute with counter-trend, as these have poked above a FebP and still below all the others, but I'd give them a bit more time to play out if the DXY breaks its YP again which was testing on Friday. 

4. If in BTCUSD from 2/16 near 407, that is moving well. "Above all pivots" scores again. 

5. If market is strong, then really INDU / DIA / YM appeared to be the leader for a couple days last week, but as of Friday came back to be about even with SPX / SPY / ES so either of those could be adds. Basically I would only buy what is above a FebP. If weak then there are plenty of choices for shorts - anything that hasn't tagged its FebP yet. So NDX / QQQ / NQ, RTY / IWM / TF, IBB, XLF.

6. Oil. On the CL1 contract, oil has been below all pivots since 11/4/2015. The recent lows were bang on 1HS1 on 1/20 and YS1 2/11-12. Something that has been down 75% in the last 2 years is going to be quite squeezy. So, if already in this position from last year then your judgment call. Major support levels were the perfect places to cover. You could also hold a portion until oil recovers a quarterly pivot.

7. If in emerging market shorts as suggested as portfolio hedges from last year - FXI EEM PIN RSX EWZ were all mentioned in November -  probably you would be out at least some of these positions, most of which had huge gains. First, all except EWZ reached an 1HS1 or YS1 or both. Second, EEM, RSX and EWZ have been above their FebPs 3 times as DXY softens. FXI has been the weakest, remaining below all pivots since 11/25/2015 and so the best to hold at this point. PIN recovered its DecP towards the end of the year but again below all pivots from 1/6/16, at which point there were plenty of USA short choices as well, but also could be held as a short compared to the now relatively stronger EEM, RSX and EWZ.

FebPs

A lot of February pivots in play for the coming week. I am showing med term pivot only charts here (so no S or R levels, and no yearly or half year levels), to make these easier to see. FebPs are the small orange dots. Crosses are the Q1Ps. 

If bullish then indexes will recover these levels and then they will further act as support. If bearish then we'll see any more lower and/or a clear rejection. I haven't lised NDX based indexes or RTY since they are not quite near their FebPs yet. 

SPX 1930, SPY 192.21, ES 1925

INDU 16440, DIA 163.49, YM 16373

NYA 9536 and VTI 97.76.

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. All charts are weekly with year & half-year pivots only.

Sum
Based on the 2/8 weekly bars (so 2 bars ago) that held INDU / DIA / YM YS1s and RTY / IWM / TF YS2s, the stage was set for a bounce and that came through. And last week, SPX / SPY / ES recovered their YS1s; NDX lifted from its YS1 as COMPQ & NQ recovered YS1s, and NYA & TFI recovered YS1s too. In all cases, the half year levels are quite nearby the yearly levels as well. So this is bullish action from major long term support (both yearly and half-year) on all main indexes - with YS1s in play for all except YS2 & 1HS2 on RTY / IWM / TF.

If looking at the charts below, just check the action from the large green crosses (YS1s or in case of Russell indexes YS2s).

And who knows, maybe the major low for the year is in and the market is on the way back to yearly pivots and then YR1s. Anything can happen. Right now we can say long term support held, recovered, or bounced on all 5 main USA  indexes. 

If the market goes higher it will will take significantly more advance to recover longer term levels ie the YP / HP / QP levels. I will do a separate post for the medium term levels to watch for the week, ie, the Feb pivots. If the market drops back down, then at least some of these YS1 / 1HS1 levels will be back in play. 

SPX / SPY / ES
SPX reclaimed YS1 1895 / 1HS1 1896 combo, bullish
SPY had held levels fractionally 2 bars ago, more convincing lift last week
ES lifted above 1866

So all 3 recovered YS1s, bullish. If lower the first to break will be SPX 1895-96, then the SPY and ES levels back in play. 

NDX / COMPQ / QQQ / NQ
NDX YS1 & 1HS1 recovered fractionally 2 bars ago, clear lift above last week, bullish
COMPQ also recovered YS1 / 1HS1
QQQ perhaps not best guide this year with big discrepancy in structure due to 8/24/15 spike
NQ also recovered YS1 / 1HS1 4130

So all but QQQ (which remained above YS1 due to pivot structure discrepancy) recovered YS1s, bullish. COMPQ and NQ do not quite yet have look of support. 

INDU / DIA / YM
All 3 had clearly held the YS1s / 1HS1s 2 bars ago, and put in some bounce from there as planned. The hold 2 bars ago is why I recommended a speculative buy on INDU / YM on 2/12. 

RTY / IWM / TF
All 3 bounced from their holds of YS2 / 1HS2 combo. 

NYA / VTI
Both recovered YS1s & 1HS1s, bullish.

Weekly strategy review

So here's a review of all the points made on this post from 2/13. 

1. "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...." 

 Markets opened higher on Monday and on 2/17 SPX lifted above its YS1 / 1HS1 area of 1895-96, and NYA cleared its YS1 fractionally on 2/16 and went higher on 2/17. Basically, this criterion checked out for the bulls and it was easy to hold the INDU / DIA buy from 2/12. 

2.  "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." 

Stock indexes were above WPs all week, and most exceeded WR1s although not all reached WR2s. On the safe havens, both TLT and GLD were below WPs this week; TLT spent just a few hourly bars under WS1 and recovered, and GLD ended the week near its WP as well without touching WS1. All in all, decent hold by the safe havens despite the stock bounce.

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."

Both RSX and EWZ of these lifted above their FebPs (not the case with most USA indexes) and had a quick pop, but faded into the end of the week. I also recommended EEM this week as a speculative buy for the same reason. All 3 of these gave the chance for small quick gains that outpaced USA indexes on the bounce.

Note: aside from buying safe havens TLT, GLD and maybe some GDX, 2/12 on INDU / DIA and early this week for RSX, EWZ and EEM were the first times this year I have recommended any stock index buying.

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. ...  if this idea is correct indexes will put in a relatively weak bounce in the scheme of things then roll over."

So far most USA main indexes unable to clear FebPs. As long as this remains the case, USA main indexes below all pivots, the path of least resistance is down.

5.  "This would mean playing a bounce lightly, look to add back safe havens on a pullback to monthly or even weekly pivot support." 

That was the right idea of the week. All the long recommendations (DIA, RSX, EWZ, EEM, BTCUSD) gave a chance for a quick gain, and we didn't lose too much holding on to safe haven positions of TLT (could have even added back in) or full GLD position.  

Check back tomorrow for weekly chart summary and the next strategy report! 

Oil

Oil is moving the market and probably decides in the near term whether stocks hold lows or rally further. Let's take a look.

This is the continuous CL1 contract with long term levels on a weekly chart. You can see the relentless drop after the 2HP and YP break in 2014, and from there is has been a long term downtrend that clearly continued in 2015 2H with the rejection of the 2HP.

But in 2016, oil has tried to hold major support area 1HS1 27.89 and YS1 26.69. Those were near the exact low areas. But if CL closes with a small blue bar above support, that increases the chance of a break in the next bar. Weak buying is just not what you want to see above major support. 

Here's the daily view of the same chart. Does not get as crystal clear as that folks! You might even think I'm drawing those levels after the bounce but no, they were in play from the open on 1/4/2016! 

Here are quarterly and monthly levels only, without the long term pivots. You can see rejection at the FebP and a lower high recently. 

Lastly, CL was able to rally above its WP to WR1 this week (chart not shown) but quickly dropping. Basically, if below the WP next week then probably back down to the major support area to test. 

CL1 could form higher low on 1HS1, or even double bottom on the YS1; but anything lower would mean next support near 24.12 and that would probably coincide with a breakdown in the market. 

Volume is moving into the J contract, and the levels are: 1HS1  30.77, YS1 29.11, then Q1S2 27.33.

 

Timing model

This site is about pivots, because that is the best way to get the most bang, meaning gains and being on the right side of the market, for the least buck, meaning time and mental energy. I think this technical strategy can be complemented by other factors: fundamental research (which takes a Bloomberg for me to do what I prefer), and then also by sentiment analysis (which I have done a few times), and timing. 

If you are reading you might be open to the idea. Although generally considered to be fallacy that doesn't stop people like Tom DeMark or companies like Raymond James, who both mention timing models and get paid quite a lot for them. So, this is my version of that sort of thing. At this point I cannot do the ultra high level of detailed tracking that high accuracy requires, but still, once in a while I'll hopefully be able to supplement the basic pivots technique with something useful. 

Like the timing model 2/11-15 turn added to the chance of a bounce, and given the structure thought to play it this time, and the site recommended speculative buy on INDU / DIA on 2/12 based on holding YS1; then suggested 3 different emerging markets to try on a close above a February pivot (EEM, RSX, EWZ). Generally it is not my favorite strategy to buy what is below all pivots or even what is above just 1 monthly pivot yet still below yearly, half-year and quarterly, as these are much more important levels. But we also had sentiment extremes, and at the time, DXY was below all pivots so I thought the emerging market trades were squeezy. Not a huge move but a small pop, and if you had the idea to hold if USA confirmed bullish and take profits if it didn't, you had a small swing gain on these 3 trades. 

Two Timing points. In Model A, we are entering a wide period where we "should" see more volatility, starting as early as today 2/19 but increasingly likely 3/1-11, then possibly continuing into 3/23. Predicting volatility now seems like an obvious point but let's see what happens especially in that March window. Bias is that indexes slide back down and bust the recent lows and we see some moments of real panic. 

Second in Model B (unrelated to A system), the next turn date (ie date series after 2/11-15) is 3/9. So far the turn window areas this year (1/19, 2/11-15) have both been lows. At some point one of these will turn into a high, but with stocks below all pivots, safe havens jumping, and expecting volatility I am again shooting for a low area there.

Sentiment

Continuing weekly series on sentiment, which is a smaller part of my total market view that includes Technical, Fundamental, Timing and Sentiment categories. 

Sum
2 significant extremes last week reached on ISEE and AAII individuals both helped the bounce, but these understandably improved this week. So sorry to say, no real edge to this report. Most readings are lower side without being an extreme; or a much milder extreme compared to last week. Whether market is free to go lower now that readings are off extremes, or bounce will go higher and participants are rightfully more optimistic, sentiment study cannot really say. I'll be watching the FebPs on the main USA indexes to decide. 

Put-call
Put-call weekly above 1.0 not nearly as high as last September, but high enough to arrange a option week rally it seems. It may be that asset managers still had stocks on first sudden drop last year, then lightened up in December so had fewer positions to protect in the new year.

Yet the daily view closer to relative lows. Mixed bag here so hard to have definite conclusion.

ISEE data from 2005
daily spikes: 2/4-2/9 were ALL below 75; 2/16 jumped to significant high which to me shows a bit too excessive optimism. 
10MA 93% percentile, down from 98% last week. Still bearish extreme though.
20MA 89% percentile, down from 96% last week.
50MA 97% percentile. 
ISEE coming off bearish extremes on all 4 levels reached in early February. 

AAII manager data from 2006 2H
75% percentile, down from 83% last week; I would count 83% as lower side, but under 80, no real edge. 

AAII investor data from 2005
bulls 89% percentile, down from 99% extreme last week.
bears 66% percentile, down from 92% extreme last week.
bull bear spread 80% percentile, down from 97% extreme last week.
8 week bull avg 99% percentile, just one up from absolute low reached last week
AAII investors also extremes across the board last week, improving this week.

FebPs

Quick one here, the market is testing FebPs on:

SPY / ES / SPX (as mentioned in the usual SPY daily section yesterday) at 192.21, futs 1925 and cash 1930 respectively. 

DIA / YM / INDU at 163.49 (above yday), futs 16373 (slightly above)  and cash 16440 (slightly above) per yesterday's close.

Also keep an eye on NYA FebP at 9536.

*

2:00 EST update. As I type SPY / ES / SPX looks rejected, but DIA / YM / INDU too close to call. Things could change tomorrow but right now the SPY / ES / SPX rejection is bearish until they recover. This would mean taking profits on some other recent longs (RSX, EWZ, EEM) if not out already, and adding back shorts. Best short candidates likely to be anything that didn't even come close to recovering its FebP and quick scan turns up QQQ, IWM, IBB, XLF; or go with what is above all pivots and add back any trim on TLT.

Monthly levels are not my favorite place to position because they can change status fairly easily; so to be clear this is just finessing long / short exposure from the recent drop and bounce. If bounce looked good to continue, then I'd say add more on what is above FebPs. But stopping at the FebP and turning down puts bear breakdown scenario back in play. Watch what happens into the close, and if nothing is really clear then just wait until Friday.

Bonds

It can be worthwhile to keep up with the bond market, even if just trading stocks. Sometimes buying safe havens is easier than shorting. Also, if bonds (meaning TLT here not yield) stop dropping then you can start thinking about a turn in stocks. 

For example, last year on the tech highs near 7/20/2015 TLT had broken its YP and was mostly below it for about 7 weeks from early June. That said it had tried to come back a few times, and on 7/22 there was a clear lift from support. After that TLT held its YP for the rest of the year. Rallies did not get far but that told you something about stocks for the second half.

This year TLT jumped above 3 pivots as SPY and others broke YPs on 1/6; for this method, this was a very important day and going with this change was the absolute right thing to do. 

For a full analysis of bonds you could check  TLT, ZB, ZN, TYX, TNX, then HYG, and then maybe even check a more typical chart view using Bollinger bands and  moving averages, but for today lets look at TLT on pivots. 

Sum from below: TLT had perfect long and medium term buy signal from early January, and adds after that above the YP. Pivots also gave a fantastic exit bang on YR1 / 1HR1 and if you didn't have a sell order in it was still clear rejection the next day to take gains from add positions off the table.

Now what? Resting period after such a strong move would be common. On the pivot view, holding 1HR1 127.87 would be positive, as would WS1 at 129.03 and overall a favorable reaction to 1H RSI chart oversold. If bonds drop further, it will likely confirm & correspond with stock index rally. If the bond pullback stops about here, then stocks more likely to fail at FebPs and drop back down. 

First, weekly with long term pivots only. The move for 2016 is clear: lift above 1HP, clear YP, lift to 1HR1, pause but no red, comeback, fast move to YR1 / 1HR2 combo, then larger reaction down. Buying was week 1 and 2 above levels, taking some profits last week was recommended. From here maybe 1HR1 can act as support. 

Here's the daily view of the same pivots. 

And here is medium term levels only, without the long term.  1/6 was a very important day. SPY had broken its YP and TLT had jumped above levels. These kinds of days can mean something in the market and sure enough it was time to cut USA longs and buy bonds. 

Here is a daily chart with long term and medium term levels combined, ie yearly, half-year, quarterly and monthly pivot levels. 

Lastly here's the 1 hour chart with weekly and daily levels. Note RSI lowest since 12/30/2015, and first touch of a WS1. A bullish reaction would be not much lower or bounce from here. 

Currencies

To make larger trend status easier to see, here are charts of the main crosses using pivots only (no S or R levels.)

DXY broke YP 4 days but has recovered. Still below 3 other pivots. 

EURUSD recovered its YP for several days, but maybe breaking today.

USDJPY broke under all pivots convincingly on 2/3 and then had a big drop. While we can check various S levels, unlikely to change status in near future. 

AUDUSD holding on to FebP but below the others.

Emerging markets

I first mentioned the emerging market ETFs of FXI, EEM, PIN, RSX and EWZ on 11/9/2015 as hedge choices against USA longs that were breaking under Q4R1 resistance. OK, these had been down a lot already so not a completely radical idea, but using pivots it was an easy spot as the collection were weaker and below more pivots compared to the USA indexes which at the time, were significantly stronger.  

As of 11/9/2015
SPY, QQQ and DIA above all pivots; IWM above 3 but below 2HP; NYA above medium term Q4P and NovP but still below YP and 2HP.

FXI below YP, 2HP, just above Q4P and NovP; as of 11/23/2015 was below all pivots and has maintained that category since! From 11/23 to the low on 2/11, FXI dropped 26% and is still down about -20% today. 

EEM below YP, 2HP and NovP; as of 11/27/2015 below all pivots, and maintained that status until 2/1. 2/3 lifted above the FebP again, then 2/16 was the 3rd time above the level. 11/27 close to low -18% and as of 2/16 close still nearly -12% down.

PIN as of 11/9 already below all pivots. It briefly recovered the DecP the last few days of the year, and didn't break under until 1/6. 1/6 gave a host of choices but measuring from there matching other indexes with at -12% drop and currently down about -9%, still below all pivots.

RSX as of 11/9 below YP and 2HP, above Q4P and NovP. Returned to below all pivots on 12/7 and stayed that way until 2/3; the last 2 days the 2nd time above the monthly level. 12/7H to low -25% and until 2/16 close still nearly -13% down. 

EWZ was a fantastic short for much of 2015. As of 11/9 it was still holding on to NovP; after a few bounces returned to status below all pivots on 12/10. From there to low was -25% down, and as of 2/3 it reclaimed the FebP for the second time for a drop of about -14%. 

If you were looking for a YS1 to cover, this nearly reached on FXI at the low, PIN near lows, RSX near exact lows, but you only got to 2HS1 on EEM and no long term level on EWZ, only Q1S2. 

Now what? As I type situation different with only DIA poking above Feb today, while EEM cleared yesterday fractionally, and RSX and EWZ have been above for 2-3 days as well. I suggested EEM as a speculative buy yesterday at the close, and also mentioned RSX and EWZ as long ideas in the weekly strategy sum here.  

While all stock indexes have a lot more to go to regains quarterly levels, for now the recovery of Feb pivots is definitely a bullish step, and it will be interesting to watch these going forward.

Main point: if you used these for great shorts last year, you had chance for fantastic gains. But now as long as we are seeing emerging markets beat USA indexes to clear Feb pivots, we can think the other way. Of course, this only applies to those above pivots, and anything that stays below all pivots while others recover remains a first choice short candidate. 



ISEE warning

Just saw that ISEE closed at 168. This is too high, and increases the risk of rejection from SPX YS1 1896 in the near future.

When everyone was expecting a Santa rally, the highest values were 187 on  12/15/2015 and 144 on 12/24/2015. Several major tops were near readings of 140+ last year. To add context, 168 is the 2nd highest reading of the past 12 months, and 3rd highest in past 18 months. 

168 means everyone is expecting more on the bounce. When everyone expects the same thing, it rarely happens. 

http://www.ise.com/market-data/isee-index/

Speculative buy

Here's another one. I don't like the volume but on this bounce not much has rallied above any medium term level - but EEM did clear its FebP today (which is not the case in any USA index). If markets and especially China continue to rally, it is possible that EEM, which has been very beat up for a long time, will get more of a squeeze. Watch the FebP! Trade invalid or reverse short with daily close below the FebP.