USA main indexes

Sum
Last week:  2 strong, 1 middling, 1 weaker, 1 TBD -.
This week: 3 strong, 1 mixed, 1 TBD +.

So positive status change in the tech set going from middling to strong, joining INDU and SPX already there. RTY small caps remain in long term downtrend but above both medium term levels, so from weaker to mixed. NYA, getting "TBD" designation looked like pause semi-rejection from levels last week but came back to close near the levels with more chance of clear, getting a +.

Still, bullish status shifts in 3 of the 5 main USA indexes and a major change for NDX/COMPQ/QQQ/NQ to all be back above YPs, the first time since 1/5/2016 for COMPQ to be above its YP. 

The levels to watch in the coming week are still the NYA YP / HP combo at 10302 / 10228 respectively.

The other thing that is a factor is high daily chart RSIs.
SPY RSI high 4/1 69.25
QQQ RSI high 4/1 70.33
DIA RSI high 4/1 73.12, bullish to be above its 3/18-19 highs
IWM RSI high 3/7 69.87
NYA RSI high 3/18 67.88

A strong market can ignore overbought readings as the Dow has already done so far, but as more indexes join in overbought territory the more likely move is a slowdown to a range with a quick shakeout to work off the overbought condition. 

SPX / SPY / ES
Above all pivots, bullish; and not near any major resistance area. Huge support with YP 1HP Q2P and AprP all nearby. On SPX the cluster is 1980-2023. Major resistance is up at the YR1, 1HR1 and Q2R1 area all 2151-2163. The near term concern is the high daily chart RSIs.

NDX / COMPQ / QQQ / NQ
This was a huge week for the tech set as NDX lifted from its YP, COMPQ cleared YP for the first time since 1/5 this year, and NQ also jumped above its YP for the second time confirming the QQQ move earlier. QQQ different structure due to 8/24/2015 spike so I haven't really been considering that status of above its YP as fully real - now it is though. 

INDU / DIA / YM
These continue to look great especially with DIA / YM daily charts ignoring overbought readings and continuing to power up. 

RTY / IWM / TF
Mixed condition. Still well below long term levels YP and 1HP, decently above Q2P and above AprP as well. Still can be considered as possible USA long hedge against DIA, SOXX, possible SPY/QQQ longs in coming weeks.

NYA / VTI
The NYA is the only "but" of this week with clear stall at the YP / HP combo. But bang on the level and may clear next week. The daily chart shows that drops were met with enthusiastic buying. Watch this NYA YP HP area next week. VTI is already above but that is a slightly different index; still as a very broad market ETF it helps to be above. 

Weekly strategy review

From Where is market going post 3/26:

"OK, so bull case is safe havens continuing to fade from YR1 levels, stocks joining VIX on the rally with more indexes clearing long term levels. If this happens NDX will clearly hold YP and COMPQ will join NDX above the level, and NYA clears 1HP at least. Globally EWZ, RSX and then EEM likely to clear long term levels first. 

Bear case is a return of safe haven trade, VIX up, and a fade of the the few indexes that are above YPs. If this happens NDX will break down, NYA look like rejection, and likely oil down that will drag down RSX and EWZ as well. 

Right now the thing that strikes me as most odd is how low all the VIX vehicles have gotten while safe havens still up there and most stock indexes still long term downtrends. I feel like this should resolve in one way or the other in coming weeks, ie VIX jump as stocks drop or fade in safe havens as stocks rally. I should also add that I like VIX very much as an indicator and right now it looks quite healthy ie, pointing to further stock rally."

Results
TLT rallied but GLD and GDX but struggled at YR1s
NDX clearly held YP; that was the big tell, see chart below with direct hold of the level and massive buying, very large range blue (up) bars
COMPQ joined NDX above its YP as well
NYA had 1 day close above its 1HP but fell back, then rallied back near the level on Friday
EWZ closed above YP, RSX closed just below YP but continued to hold 1HP, and EEM closed above its 1HP for 3 days despite opening well below on 4/1

So bull scenario most items met! I didn't have a list of adjustments because the suggested portfolio was already pretty long combined with GLD/GDX. I've been recommending mostly longs with exception of a few very quick hedges / shorts from the 2nd time above FebPs in late February, and pointing out Dow strength very frequently since then. But if you wanted to add long exposure then the thing to do was buy something lifting from a pivot that wasn't overbought yet; ie NDX / QQQ the obvious choice. I suppose possible add on EEM though that has been quite overbought several times recently. EWZ and RSX more subject to oil move and oil hanging by a thread. More on that in the next strategy report. 

Valuation and fundamentals

Check valuation tag for prior versions. From WSJ each Friday. 

SPX reached 17.49x forward earnings. 17x support 2014, 18x resistance 2133. 
NDX 18.54x forward earnings, 18x support 4400 and 19x resistance 4644.
INDU 16.69 forward earnings, 16x support 17056 and 18x resistance 18122.
RTY 17.10 forward earnings, so on a level to watch. if higher 18x 1182.

It seems possible that we see SPX 18x again, especially if election uncertainty matters continue to diminish. A valuation level and major pivot increases the chance of a major top like SPX 2/11 low likely near 15x forward earnings was a big low. Although I wasn't tracking this measure at the time; that is the likely estimate assuming the index did not have a massive change in earnings estimates. The May 2015 highs on SPX was very near 18x as well. 

Here's the current link to Citigroup Economic Surprise Index put out by Dr. Yardeni. Though the slope is what matters, this has been negative nearly all of 2015 and 2016. This played into the USA range bound action and corrections during this period. For a real bull run to new highs across indexes we will likely need to see this push into decent positive territory. 

For now the sum view of both of these is that market while not extremely expensive is getting up there, with almost no economic surprises to upside. While momentum may carry markets higher, some type of range and digestion period seems the more likely scenario. 

 

Emerging markets

Check the tag for previous versions.

Sum
SHC (Shanghai) big picture weak, but no Q2 or AprPs yet.
FXI weak and short candidate but testing AprP today, so trigger valid below that level.
EEM possible 1HP rejection would be negative, but above AprP and Q2P.
PIN not doing much this year; also above both AprP and Q2P.
RSX holding up well despite YP rejection; above 1HP and currently testing AprP, above Q2P.
EWZ similar holding gains despite YP rejection, above 1HP and well above AprP and Q2P. 

Bottom line triggers in this method are pivot changes of status. We want to be long what is above pivots and avoid or short what is below. If long EEM and 1HP rejection, then use AprP as deciding factor; also can reduce or hedge with FXI to lessen long exposure.

In some weekly strategy reports and oil I suggested taking some profits because oil hadn't cleared a quarterly pivot, but have some runner units since likely to be above the Q2P. So far that is playing out. Similar logic with any RSX / EWZ positions. 

In this set FXI still looking like best short of the bunch. RSX and EWZ are doing the best, and of course highly contingent on oil. 

* * *

SHC W chart limited bounce. For some reason for 4/1 not appearing on tradingview.com yet, so no Q2P or AprPs yet. 

FXI weak bounce too.

FXI D testing its AprP here with Q2P lower at the orange cross. Still looks like FXI can be used as a hedge if holding EEM positions, and if FXI breaks under AprP that gets you below 3/4 pivots. 

EEM W, whoa. That is just not what you want to see if long, a try and fail above the 1HP. To my view a blue bar close would look even worse than a smaller red bar. 

The AprP is just below current price, and the Q2P near the red line at 2015 close. So at least some medium term support nearby. 

PIN (India) strong buying from YS1, but no follow through. 

Dropping onto AprP here, with Q2P not far below. 

RSX YP rejection but 1HP holding now 4 weeks. Not bad.

Hard to see with current bar but right on AprP today. 

EWZ also holding a lot of gains despite 2 red bars just under YP. Also holding 1HP as support. 

EWZ well above AprP and Q2P. Huge doulbe RSI divergence on recent highs, but holding up well. 

Sentiment

Weekly series as long as time permits. Check the tag for prior versions. 

Sum
Put-call is going on the low end, both daily and weekly charts. But nothing else is close to a toppy area. Usually we would see at least 2 of these 4 readings at extremes for a major top. So upside may be more limited especially around the next option expiration week, but nothing else suggests a big top.

* * *

Daily put-call down near area that has been near lows since 2014 2H to now. 

Weekly put-call also getting down there now, though can go lower. Still, upside "should be" more limited perhaps especially the next option expiration week. 

 

ISEE
Oddly 3/22 and 3/23 were daily spike LOW readings ie too pessimistic! While 3/18 was the last higher reading, nothing extreme since 12/24/2015. I think we should see a high daily reading for a major top area. 

10MA 93% percentile, still bearish extreme.
20MA 97% percentile, bearish extreme.
50MA 94% percentile, bearish extreme. 

AAII managers
Up to 42% percentile, up from 52% last week. This was down to near extreme 88% in February. 

AAII individuals
Bulls only 27% which is 90% percentile going back to 2005. This is just not how markets top out!
Bears on the lower end 25% but that is 19% percentile. So very low bulls, not so many bears either. High neutral then. Is that a top? Probably not.
Bull bear spread reflects this with very middle of road 57% percentile.
8 week bull avg still bearish extreme 90% percentile!

Kensho vs TPP

Continuing a series... check the "vs" tag below for more. 

Kensho is an artificial intelligence / search / analysis program recently hyped in NYTimes and being mentioned often on CNBC. I don't have a PRO subscription but you can see the call to sell TSLA before the event based on past history. I don't really see any "intelligence" here this is just a pattern that can continue or not. 

TSLA has had tremendous rally but did just stop cold on its 1HP, YP and Q1P pivot area shown in the chart below. So using pivots alone I should side with Kensho here; ie, pivots stopped the move so next move down. But TSLA also could rally above in today's session. 

But I also think that despite analysts waiting for this event for years, this is one of the true innovation stories in today's economy. Musk is a great showman. They could have some ticker showing real time reservations or something like that. Demand will be off the charts. I think it could breakout up above pivots on Friday after the event if this doesn't happen on Thursday. 

But at the same time 3 pivots against the right now I am not suggesting an entry. Although the low looks great as a buy with selling climax and 1HS2, that would have been hard to do. March 3/2-3 with clear hold above the YS1 - and above a monthly pivot as well - would have been much easier psychologically to have both a long term support and medium term strength to signal a buy.

There has already been one rejection 3/22-23 that was met with strong buying on 3/24. Yesterday 3/30 looked like another rejection of the YP but maybe that is bought as well. Clearing would be bullish. Let's see what happens. 

4/1 update: Human with brain beats the AI search tool. 25% short interest too haha!

Timing model

Last update 3/24. Rough work in progress. 

Model A 3/18-21 delivered minor high. At the time I thought the way to play a small reaction was VIX futs since on a YS1, TLT long again on major levels, XLF short since lagging and on levels, possibly FXI short to hedge out EEM.

Model A 3/31
Model B 4/1 mild

So some chance of turn here in this window, with 4/8 being the next inflection point (Model B 4/9 "strong" date is Saturday). But these could both turn out to be highs, or some stock high here and pullback into 4/8 could also happen. SPY, DIA etc reached levels but we'll have new monthly pivots starting Friday so without levels I will be much more reluctant to adjust positioning based on timing idea alone. Hopefully there will be setups on new Q2Ps in some indexes, but if you are following along you are mostly fully invested depending on management of GLD / GDX from yesterday. 

Keep in mind 2/11-15 the big turn on the year was both Model A and Model B turn but I had just started writing about it. So sometimes these work. But I can have wrong idea as I misjudged Model A 3/1-11 move, although did point to inversion possibility early in that period, with Model B 3/8 being a pullback within that. 

In other words, sometimes Model A & B combine to produce nice turns in the same direction, but it is also possible that Model A is up and B down which complicates the matter. This is just a rough sort of experiment I am doing and feel free to ignore and focus on pivots. Maybe after several turns on pre-published timing dates it will warrant your attention. :)

 

Bonds

Sum
I recommended TLT on 1/6 when it jumped above pivots and then said add further if YP acted as support which was 1/22+. The first exit was nailed on 2/11, but then I said hold above the 1HR1 level which got shaken out and probably I should have used a zone of that long term level plus a medium term level.  

A recent play on TLT I said quick in and out but not sure the out was correct. I thought to move money into what was moving best and that meant stock indexes but this is still quite a decent trend. Near term will be watching relation to and any move from Q2 and AprPs that will be in play from 4/1.

* * *

TLT went from 2015 high very near 1HR2, all the way down to 1HS1; then up to 2016 high at 1HR2 / YR1 combo. Current it is holding 1HR1 as support. The long term level range is that 1HR1 up to high area at YR1 / 1HR2. 

Here is the daily chart with the same levels to see how active they were. I am not showing the quarterly and monthly pivots since they change over on 4/1. For the huge rally in stocks, TLT has held up quite well.

Some interesting BB divergence on the highs. Previous highs were outside the BB, this one entirely inside. But decent advance with strong rising MAs and markets can ignore divergence and continue higher. Near term I am wondering about a re-balancing drop in TLT.

This M chart just doesn't look too bad. Small red bar that held the open area. To me looks more like pause than reversal. Nicely rising MAs too. 

GLD and GDX

Like the currency charts today I will do long term levels, then quarterly and monthly charts. 

GLD W chart fading back under YR1 again. This would be very negative for a full GLD/GDX position. We are still 3 trading days from close but concerned about re-balancing / profit taking in the new Q. Anything close below the YR1 level again would be a reduce. 

Here's the daily chart with the same long term levels. We do not want to see the YR1 act as resistance today after jumping above yesterday. But above is OK to hold.

Note: current GCJ contract YR1 level is 1230, so that can be factored into this decision too.

GLD Q chart still in downtrend really, below a falling 20MA. 

But M chart turning above a flat-ish 20MA. After one fake-out bar 2015 Jan, this is the best move in years simply going by this measure of above / below the monthly 20MA. 

GDX below the YR1 but willing to give room if GLD / GCJ holds. 

GDX Q chart also still in severe downtrend but the small red bar 2015 Q4 (ie no more selling) was part of the tell for the bounce here. Also helps to be back above the 2008 low.

Above a still falling 20MA that should be in process of flattening out. First time in years above the M 20MA though. 

Currencies

Seems like we should see a long term support level on DXY, so that means lower. 

With new Q2 and Apr pivots just 2 days away I will just go straight to quarterly and monthly charts. Actually that is classic BB & RSI divergence on the 2015 Q4 bar. No one should be surprised at some selling here. 10MA far below, room for more pullback. 

Although the M chart looks more bullish, just drop to nicely rising 20MA with RSI in uptrend buy area. Not sure which chart wins here. 

EURUSD lifting up from YP again, will it reach 1HR1?

EURUSD Q chart bounce with similar BB & RSI divergence. 

Although also heading into falling 20MA, near test once so maybe clears this time.

USDJPY low on YS2, but upside limited if USD is weak. 

Now there is a good example of the importance of this exercise... 2015 Q4 small blue bar with wick and lower close that high begs for a drop in the next bar, and that is how it played out. 

Small blue bar in 2016 Jan too, so once Q and M chart showing weakness there was meaningful drop. 

AUDUSD decent rally from 1HS1 along with GLD. Almost tagged 1HR1 but above YP for the first time in quite a while. I also mentioned this as long term buy and hold possibility for this reason a couple weeks ago.

Seems like bounce more to go on this Q chart. 

But M chart heading into falling 20MA, watch for resistance. 

Back in February I noticed that BTCUSD looked good above all pivots, and though if there were stories about $ getting out of China, gold up etc then a digital currency might get a run. It didn't do much. Too bad I didn't know about Ethereum, up to 1530% this year at the highs from 12/31/2015 close, and still up a decent 1190% to today :) Above all pivots with clear support from 1/16-17 of this year and monthly pivot holding the pullback both in early Feb and exact low in March!

Sell stocks? UBS vs TPP update

Last week there seemed to be quite a lot of bearish sounding calls with markets at highs. To me everything seemed quite healthy and I wrote up this piece. PS, we can even add the very respected Mohamed El-Erian who called for a 10% drop on 3/24! Remains to be seen but so far that is going the wrong way. 

Now, the VIJ6 16.85 did trigger and that worked really well for a 1 day hedge as suggested with an exit the next day. But rather than sell stocks I thought best to have a few very brief defensive plays (also TLT long, XLF short, FXI short if in EEM long) against a mostly long book (DIA, SOXX, GLD/GDX, small oil related remaining, EEM) and then see what happened. 

Also from 3/22: "If stocks are green on the year as more and more are this will put pressure on the fund managers to buy. I am not necessarily saying jump in and buy today, as anyone following along got decently long from the end of February through 3/10-11 after having starter longs on 2/12. But right now holding longs, and being careful ie not so eager with shorts or hedges, is proving the right approach."

And that is how it has played out folks. What I didn't peg was how SPY going green would trigger large short covering on IWM, that would have been nice. 

Quarterly and Monthly charts II

Nearing the quarter close it is an especially good time to remind ourselves of the larger moves and trends by checking quarterly and monthly charts. I covered the USA mains here, included these charts for oil in today's post, and here are some other USA ETFs I like to watch. 

Sum
IBB Q chart 2 bars with RSI 90 - an incredible parabolic move that had to have a dramatic end. This sector probably in a very long consolidation period, but M chart suggests bounce.
SOXX looks good especially above the M 20MA; another reason to hold longs.
XLF congested (between rising and falling MAs on both charts) but still relatively weaker index on many levels; another reason to keep on short candidate list. 
XLE bounced off M 200MA but 10MA still pushing down and looks to me like it could drop back down to form some higher low. 

IBB Q chart here. This had an amazing run and led the rally for years. 2 quarterly closes with RSI above 90! That is a parabolic move and anyone holding without any profit protection plan at that point was just delusional. A very long consolidation is due. 

This might be setting up for a bounce. Small red bar on the lower BB and just above a nicely rising 50MA. But I don't think the quarterly chart will zoom back up to highs anytime soon. 

SOXX Q chart looks pretty good with higher close (at current level) and RSI room to go up.

SOXX M above the 20MA which is another reason to be holding the long positions. 

XLF Q held 20MA but below flat or slightly falling 50MA. Glaring lower high compared to 2007 of course. 

XLF M held rising 50MA but stuck under 10, 20, and 200MAs.

XLE Q chart held the lower BB but under a rising 50MA.

And there is a bounce from a M 200MA with classic RSI and BB divergence too. But 10MA still pushing down and this may have to form some higher low. 

Oil

Sum
Despite a 60% rally off the lows on the CL1 contract in about 6 weeks, CL1 did not even tag its long term levels 1HP and YP. It spent 2 trading days above the Q1P and then failed. In other words, from The Pivotal Perspective this rally was weaker than 2015 Q2 advance because that spent the entire quarter above its Q2P.

Oil looks subject to near term pressure, but may open Q2 in mixed condition below long term levels yet above Q2P and AprP. This is just not the best setup for a major new position, but oil obviously impacting the related RSX and EWZ, and likely still correlating to USA stocks as well. No strong opinion here other than to say long term downtrend remains intact. If oil opens above the next medium term levels we'll see how those react. The last two oil posts here and here were indicating pause likely.

CL1 W chart toppy candle last week under long term levels with RSI in downtrend sell zone.

CL1 D chart with 2 days above the Q1P and then fail. These levels only valid through 3/31 however, and it is likely that oil will open above Q2P and AprP. For now the move is more like rejection though.

The current K contract looks more bearish since it did not even come close to recapturing Q1P. Depending on the next few days we could be close to its Q2P and/or AprP.

CL1 Q chart for context near the Q1 close. Held the 2008 low and better to be inside the BB, but relatively weak advance despite the percentage up.

Monthly chart withe the same low marked. Better RSI and BB divergence on the low, and Feb close above the low was some tell for the rally. But 10MA is sharply falling and may be resistance, which would mean next move down. 

Breadth

I also cover the NYA in the USA main index post every weekend, but I do think it is that important. When NYA is on your side on a USA index position it will usually work.

Sum
Both NYA and ACWI stalled at key pivot zones. The NYA reached its 1HP on 3/18 and was unable to close above, then had a rejection bar on 3/23. ACWI reached its Q1P and was near the level 3/18-22 until a rejection on 3/23.

Despite the strength of other popular breadth indicators, the inability for key institutional indexes to reclaim long term pivots is a cautionary note. We may yet see a second attempt and clear, but that is conjecture at this point. 

* * *

Using daily charts to illustrate precision of the pivots here. NYA resistance exactly on the 1HP, and if that clears then it will be dealing with the YP.

Here are the quarterly and monthly pivots, but these will be changing on 4/1. The 2nd move above the FebP confirmed the bounce scenario.

ACWI managed to close above the 1HP for 4 trading days but fell back under with clear rejection on 3/23 with decent volume. Like NYA, it was also close to running into its YP.

And there is ACWI running into its Q1P which was exact on the high. 

Quarterly and Monthly charts

3 days left in Q1 so an interesting time to check quarterly and monthly charts. For today let's check the USA mains and I'll try to include others of interest (TLT, GLD, oil, emerging markets) in the next few days. 

On all charts:
Standard Bollinger bands and simple moving averages
10MA = light blue
20MA = orange
50MA = purple
200MA = black

Sum
SPY Q chart bullish but possible RSI divergence, M chart better above 20MA
QQQ bullish with resistance at 2000 quarterly close high, Q chart RSI still overbought!
DIA looks best (and not just saying that due to earlier buys; already nicely above M chart 20MA and RSIs more room to move up)
IWM Q chart does not look bad, M chart some question
NYA Q chart could be stronger, overall better above 2007 close high, M chart congested

SPY Q chart held low areas of 2014 Q2, 2014 Q4, and 2015 Q3 which looks good for a move to the top of the range at least. Also holding a nicely rising 10MA as support, in fact 1 close near the level and otherwise above on close. All this looks bullish.

But the concern here is the clear divergence on RSI. RSI was 75.5 on the 2014 Q4 bar and 75.7 on the 2015 Q1 quarterly close high. 2015 Q4 was 69 for the clear lower high and with 3 trading days to go it is 68.6. Will RSI rocket to overbought territory again, or will there be sellers into any further strength? Something to keep in mind in the weeks ahead. I'm not sure how many SPY points it would take to get RSI from 68.6 to 70, but it isn't that much. 

SPY M chart reached RSI 50 buy area on the lows and currently testing its 20MA. Very simple, in addition to the pivots we like to consider, it is more bullish above that level but bearish if the bounce stops here. See May 2008 for a bearish example, and July 2010, November and December 2011, June 2012 for several bullish examples. 

QQQ is holding a sharply rising 10MA as support but fell back under the 2000 quarterly close high. Note this level has been resistance for 4 quarters of the last 5. Bulls have a shot, but stronger above that level. Quarterly RSI still overbought but trending lower.

QQQ M chart broke the 20MA but bottomed on the lower Bollinger band twice. More bullish above the 20MA.

DIA Q chart nearly tested its 20MA twice. RSI only 66 which has more room to move up. This chart looks pretty good. 

DIA M is above its 20MA and that is another reason to hold the longs that were purchased below that level. 

IWM Q chart looks pretty good too, holding its rising 20MA and RSI near uptrend buy area at 56. If lower then 2007 & 2011-12 high areas along with 50MA next big support area. 

IWM M chart back above rising 50MA, but lows that far outside the BB may have to test. 

NYA Q chart is holding the 20MA but would look better with a higher close than last quarter. Possible resistance at the 2007 close high area. 

NYA M chart in congestion zone between rising 50MA and falling 20MA. 

NKY and DAX

Sum
While both indexes participated in the global risk rebound from 2/11-12 lows, both have exhibited relative weakness compared to USA and other oil related emerging market ETFs. Both remain far under long term pivots; NKY did not even reach MarR1, and DAX traded slightly above MarR1 for 2 days and today has rejected that level.  

Relative weakness make these attractive short candidates, or from institutional or investing perspective current under-weights. As a short, though, NKY is sitting just above YS1 so that is a much better setup on a break. We can also watch to see where price is in relation to new Q2 pivots. 

* * *

NKY continues to stabilize above its YS1 / 1HS1 levels of  16766 and 16974 respectively. Above this helps the global bullish picture. Below makes NKY an attractive short candidate. 

These levels only have a few days left. NKY like almost all global risk spent all of March above its monthly pivot; but unlike other indexes, did not reach an R1 level. That is comparatively quite weak.

DAX broke and recovered its YS1 / 1HS1 levels as part of the global rebound but has not doine much the last 2 weeks and remains well under long term pivots. 

Due to DAX relative weakness, it will be closer to testing Q2Ps on any further drop. But we'll see where price is relative to the pivot in the new quarter. 

Where is market going from here?

Wouldn't we all like to know that!? 

Major USA indexes above YPs
INDU, SPX, NDX (NDX barely)

Minor USA indexes above YPs (there are others that I am not tracking)
SOXX

Global indexes above YPs (again there maybe country specific ETFs that I am not tracking)
zero
(EWZ and RSX were above recently for a few days then fell back under)

Safe haven assets above YPs
TLT, GLD, GDX

VIX and related VXN, VXD, VXR, VBEM (emerging mkts VIX index)
Under all long and medium term pivots!

Conversely
Major USA indexes below YPs
COMPQ, RTY, NYA

Minor USA indexes below YPs
IBB, XLF, XLE, HYG, USO/CL, XIV

Global indexes below YPs
DAX,/EWG, NKY/EWJ, SHC (Shanghai), FXI, EEM, Nifty/PIN, RSX, EWZ (see note above)

OK, so bull case is safe havens continuing to fade from YR1 levels, stocks joining VIX on the rally with more indexes clearing long term levels. If this happens NDX will clearly hold YP and COMPQ will join NDX above the level, and NYA clears 1HP at least. Globally EWZ, RSX and then EEM likely to clear long term levels first. 

Bear case is a return of safe haven trade, VIX up, and a fade of the the few indexes that are above YPs. If this happens NDX will break down, NYA look like rejection, and likely oil down that will drag down RSX and EWZ as well. 

Right now the thing that strikes me as most odd is how low all the VIX vehicles have gotten while safe havens still up there and most stock indexes still long term downtrends. I feel like this should resolve in one way or the other in coming weeks, ie VIX jump as stocks drop or fade in safe havens as stocks rally. I should also add that I like VIX very much as an indicator and right now it looks quite healthy ie, pointing to further stock rally. 

 

Comparing bear market rallies to today

Using the 5 main cash indexes, let's look at 2008 and then 2001-02. I'm doing this to add to context of "bull vs bear" idea first posted here.

2008 Sum
In 2008, NDX, INDU and NYA backtested and tagged YP and/or 1HPs and clearly failed very near the level. NDX alone exceeded YP slightly, but with 1HP just above and still resistance and never achieving YP "look of support." INDU and NYA crystal clear rejections at their YPs. So maybe this is an obvious point right now, in 2016, but 2 major indexes are above YPs so as long as this is the case we are not in a 2008 type of scenario.

Ultimate lows in 2008-09 were at SPX 2009 1HS1, INDU 2009 YS1, RTY YS1 near test, and NYA YS1 near test. 

2001-02 Sum
While SPX and NDX stayed completely below YP levels, INDU, RTY and NYA exceeded YPs for several weeks both in 2001 and in 2002. In 2002, the RTY was above its YP for the entire first half! But eventually all 5 did break down and go lower.

Ultimate lows were SPX 2002 2HS2, NDX 2002 YS1, INDU 2002 2HS2 break and recovery along with 2003 1HS1 near test, RTY 2002 YS2 near test, and NYA 2002 YS2 near exact. 

Main point for coming weeks
As much as we'd all like to know for certain, the market is unpredictable. For positioning purposes, the more main indexes above YPs the more bullish. If indexes fail at YPs then that will be clear and one can adjust the other way. Right now INDU and SPX remain above, NDX / COMPQ mixed and testing, NYA nearing a test, and RTY well below.

Obviously, if NDX holds YP as support and COMPQ joins above the YP, and NYA rallies at least above its 1HP and eventually clears its YP, then that will be 4 indexes above instead of 2. Conversely, NDX could fail leaving only INDU and SPX above, and NYA have clearer rejection. We'll see what happens. 

Keep in mind we've already seen YS1s on SPX, NDX, INDU, and NYA, and YS2 on RTY and there has been a tremendous recovery since then. 

2008

SPX dropped to YS2, rallied back to near YP but didn't even tag, then crumbled. Eventual bottom near 2009 1HS1.

20160326 1 SPX W.png

NDX broke and recovered YS1, and rallied all the way back to YP / 1HP area. 2 weeks did close above YP but the 1HP was just above and stuck as resistance. 2nd time under the 2HP led to waterfall drop. COMPQ (not shown) remained completely below both YP and 1HP without even tagging the levels.

INDU also backtested its YP but failed bang on the level. INDU eventually bottomed on 2009 YS1 near exact. 

RTY did not even tag the YP on the rally. Breakdown of 2HP started the massive drop. 

NYA backtested YP and had clear rejection. 

2001-02

Back to SPX for 2001-02 charts. SPX failed bang on YP & 1HP combo early in 2001, and stopped fractionally above the level without achieving "look of support" in March 2004 followed by a clear failure. 

NDX was leading the drop and stayed completely under YPs after breaking down in November 2000 until finally recovering in May 2003.

INDU W exceeded its YP both in 2001 and 2002. In 2001, after recovering its YS1 / 1HS1 combo, INDU rallied and then was above its YP for 6 weeks. 2 of those weeks were up, 1 was a pause, 1 down, 2 not much movement, then a breakdown. After backtesting the level from underneath and failing a larger drop followed. In 2002, INDU held 1HP support and stayed above the YP for 16 weeks (!) before eventually breaking down. 

RTY stayed completely under the YP with clear resistance in 2001, but also stayed above the YP / 1HP combo for the entire first half in 2002, breaking down only at the start of the second half. 

NYA also spent several weeks above its YP both in 2001 and 2002. 

Valuation

Click on the valuation tag for prior entries. Data from the WSJ updated each Friday.

SPX current 12 month forward p/e at 17.55. This was a very negative development from last week, because p/e was 17.05 while price dropped. This means earnings estimates dropped a lot, from 120.21 to 116.01. 18x forward earnings is now 2088. It is hard to imagine institutions paying more than 18x with FOMC and election uncertainty; this implies a cap on USA gains that is not far away.

INDU, current USA leader, 12 month forward p/e is 16.50. Earnings estimates did not dramatically change. So 16x support at about 17000 and 17x resistance at about 18000. 

NDX estimates 18.15, up slightly from last week with negligible earnings estimate change. Will NDX hold 18x forward earnings at 4368? Quarterly chart is still overbought! Watch that YP at 4373!

Lastly RTY forward p/e 16.70 which does not sound too bad. Current is nil, however. 16x support 1033 and 17x resistance 1098.

Weekly strategy sum

If following along coming into last week long DIA and SOXX, maybe EEM, maybe runner portions oil or oil related EWZ / RSX left to hold above Q2Ps, and decent GLD/GDX position. Strategy suggestions did a nice job avoiding stock pullback damage with TLT and especially quick VI futs trade idea along with XLF and possibly other shorts, but GLD/GDX got whacked, sorry. That was rather out of the blue and even though looked like holding YR1 as support had a big gap down under the level.

We are heading into quarter end and new Q2 so in addition to pivots I try to guess the likely institutional re-balancing move. I don't always get this right - wouldn't that be nice! But be aware that starts of quarters can see sudden new directions as the window dressing period is over and there is re-balancing going on. Where might this happen? As the week unfolds I might post a few longer term charts like quarterly (Q) and monthly (M) standard view Bollinger band and moving average charts on several asset classes as well. 

With exception of biotechs most USA stocks are about flat so nothing screams re-balance to me. But TLT and GLD/GDX on track for large quarterly gains. GLD/GDX just starting new up move or bounce in downtrend depending on your view, but TLT up there near highs. So that is the question - will institutions sell bonds and put that money into stocks, or be selling stocks and buying bonds? I don't have strong opinion about next week other than i "think" the window dressing move should continue the emphasize asset classes that have done well on the rally, so small caps, oil & related, some emerging markets, and the USA leaders DIA and SOXX (doing much better than QQQ and IBB this year). Then I am wondering about TLT getting hit in the new Q as institutions sell again before any rate hike threat while TLT has the gains and toppy considering Q and M chart view. If oil rallies into quarter end it maybe vulnerable to a drop in Q2. But really just guessing here and we'll go with the pivots. 

If you took off VIX hedges and closed some shorts on Friday portfolio is back to mostly long. Or if keeping any shorts, XLF looks best to hold and if in EEM I suggested FXI as hedge and that is OK to hold too. Mostly long works on DIA and SOXX but really looking across USA mains, Japan and EU, then emerging market group there is no reason to have massively 100%+ long all in portfolio right now - ie, most stock indexes are still below long term pivots! So we can scan for the weaker indexes to possibly re-short, so that means IWM & XLF on USA side, possibly IBB but that could be getting about done, then clearly SHC (Shanghai) and FXI are the weaker indexes on the global side. Both NKY and DAX remain quite weak as well. If the Tech group (NDX COMPQ QQQ NQ) goes to more bearish with NDX break of YP, then it might be better to take the gains on the comparatively recent SOXX longs and free up cash for other ideas. 

Not sure what to do about GLD / GDX here. The slam was large and sudden and monthly pivot just below, so thought maybe just hold above that. But now both weekly charts look like YR1 rejection which is potentially quite bearish. 

The other things I've said in various places and will repeat here - if you took some gains on oil related, and out of TLT, put some shorts on and took off last week, then depending on GLD position you might have portion cash on sidelines. This is OK - you don't have to have 100% in all the time. In fact often quarter end and new quarters are ideal places to have more cash so you can go with the new move. But I am not talking about 50% cash or anything, if we carved things up into 20 units then you could be long with 8 DIA and 2 SOXX, then 4 GLD and 1 GDX (if still in full position), 1 EEM, .5 each EWZ/RSX leaving 3 units that you used for VIX, TLT and or XLF positions last week. Maybe use margin at times for a few extra units as hedges or good opportunities, let's say another 5 units so that's not too crazy if portfolio goes up to 125% total exposure. If GLD forces us out then that's OK, we'll have a new setup soon enough and maybe it will be better to be more long stocks or more short, we'll see.  

In the very near term on USA indexes, watch if SPY and NYA can again get green on the year. Both QQQ and IWM had too big a drop to do this, and DIA is already well into the green. On several indexes this year there was a rush of buying when it was clear the index was getting green. 

Bottom line I don't have a list of things like last week. I don't know which way the market will go. Momentum looks like DIA and leaders should test highs but that is just a bias. We will have new Q2Ps soon enough and sudden moves often start at the start of quarters as institutions adjust. That is what we are looking for.