Valuation and fundamentals

Because I have lost faith in WSJ data as explained in the last column, I am just going to post a link to Yardeni's chart of Citigroup Economic Surprise Index and his SPX P/E graph  that seems to be from Thomson Reuters data, and comment on those. 

But I just found a source for the actual Thomson Reuters number, so I will watch it for a few weeks and if it looks good then will shift over to that. 

For now there has been a huge development in the Citigroup Economic Surprise Index that is quite bullish for markets. I've been watching for months for a move above the zero line and suddenly the Index is higher than it has been since the start of 2015 - 18 months - with a very sharp slope up. This is very bullish and according to this the market should soon blast through the highs.

Valuation remains on the higher end and appears to be about 16.50. This is a bit lower than the end of 2014 but asset managers probably pay up to be long stocks into the seasonally strong Q4 and a bit less in seasonally weak Q3. Regardless this gives room for stocks to move up to 2180-85.

Total market view

Last week: "We'll have 3 new pivots this week, so the biggest change-over date of the year after 12/31. For now levels to watch are VIX YP (just below), NDX Q2P (fractionally below). To translate, market in serious trouble if VIX moves and closes above its YP."

NDX Q2P broke, but VIX YP held! In fact the combination of INDU YP and VIX YP gave the chance of turn on 6/27, and the move on 6/28 was crystal clear using these methods. 

Sum
Due to RSI extremes on the safe havens, I would rather see a bit of a fade there as stocks rally further. If you were savvy, you were reducing stock longs on Friday 6/24, then buying back small portions on 6/27 and larger 6/28.

You are holding some safe havens although admittedly that gap up on 6/24 was tough to buy if you had taken some profits on the major level rejections near 6/21.

If you want to play global stocks, EWZ continues to lead as it was entirely above its YP on the drop, and in fact above all pivots from 6/16 on. 

Pivots
USA stocks are back to bull mode with one catch - RUT / IWM still below the YP. So that is the big level to watch next week, along with XIV Q3P. 
Safe havens TLT and GLD are well above all pivots and while seeing extremes where counter-trend move becomes more likely, we "should" see major pivot resistance for a big turn.

Other technicals
We are reaching very rare RSI territory in bonds - not to mention the all time low ha - and I did a special post on TYX this week to show. Maybe the market will fake me out here, but my view is that we are NOT seeing signs of a typical turn. Even though short to medium term snapback rally in yield / drop in TLT looks more likely, longer term looks lower for yield / higher for TLT.

Base case: as long as TLT is screaming higher, stock upside limited.

Sentiment
Daily put-call when from very low levels at the top in June to notably high levels 6/28. Smart $ was right to hedge though, and those who did avoided some of the pain of the drop. 

Valuation and fundamentals
See detailed post today. I've lost faith in WSJ data and not sure what to make of that project. But keep to case that we will need fundamental economic positive surprises for stocks to have a better rally, although when that happens people will also start to worry about interest rates. Safe havens will likely stay strong with the index below the zero line.

Timing
What do you know, timing windows on both the low and current high of year in stocks. Not perfect and some miss but not bad. 

July dates
7/13-15
7/29-8/5 strong

Bonds

This blog is about pivots but I do check other indicators - RSI, moving averages and their slope, Bollinger bands. Yields are entering into historically rare territory, technically speaking. This is certainly in part due to the arm twisting, to put it mildly, of global central banks. So I am not saying it stops here. But if it did we should see signs of a turn in the charts.

Usually I keep to TLT but to show the very long term history using TYX here. From The Pivotal Perspective, downtrend in force below Q3P at 2.43 and still long term bearish below 2HP at 2.52. First target Q3S1 at 2.10, then 2HS1 2.02.

Sum
The 30 year yield (TYX) tested its all time low on Friday. Not showing the 10 year TNX here, but that came .02 shy of its all time low as well.

RSI extreme with divergence reached on TYX daily chart, extreme reached on weekly that is somewhat negative, ie below 30, nearing extreme on monthly as well. All these give chance of some turn. However, I think the Bollinger band action especially on the weekly chart is bearish for yield; while a move back into the band is likely, the better yield rallies come after better looking stabilization lows inside the band. 

TYX Q
20MA resistance since 2014 Q2. the 2015 low was 2.22; 2016 low 2.20 and now 2.24. You get what I am pointing out here - the market just tested the all time low in 30 year bonds on Friday 7/1. Anything above 2.22 is potentially bullish for yield. 

TYX M
Monthly chart RSI nearing full OS. Just look how uncommon that has been since 2000. Most of those times have coincided with stock market turmoil. Another level to watch is the close of the previous low at 2.25. 

TYX W
And there is the low on the weekly chart. RSI OS, but Bollinger band action is quite negative here. My view: yields would have a better chance of a turnaround if we saw the down pressure slowing, ie staying inside the band, instead of a huge plunge below. 

TYX D
Also RSI extreme with some divergence. A reaction move would be normal, but given the momentum think we will ultimately see lower. If I am wrong about this, ie the turn is right here right now, we should see a swift move back above 2.25.

Safe havens

Sum
2 main safe havens, TLT and GLD, are *soaring.* It is difficult to imagine a strong stock rally as long as this is the case. Yet it is quite impressive how USA indexes have held up. Maybe it is just a global thing - no one wants to be in Europe, Japan, China, where to go? So into both USA stocks and bonds is the big money move. 

VIX gave the perfect stock buy / short cover signal between Monday 6/27 and Tuesday 6/28. It has been great on the lows this year. But due to structure of last year's spike, it is unlikely we will see VIX support levels on stock turns, so pay extra attention to XIV for spotting stock market tops. We are heading into the Q3P on XIV, so this will help confirm a stock rally (especially if IWM is also clearing its YP) or fade (ditto, especially if IWM is falling from its YP).

TLT
Wow. Huge jump above YR1 and since clearly holding 1HR1 as support in late April TLT has been on a tear. Unfortunately the new 2HPs are not showing on the weekly charts yet. We'll see them as the new bar opens on Tuesday. So this means the red dots that look like heading into resistance are not really in play.

That said, the weekly chart RSI full OB (overbought) worth watching. This is a fairly rare event - just a few weeks of the past 5 years, then a cluster of weeks in 2011, 1 week in 2010, then of course during the market meltdown in autumn 2008. 

We *can* see the 2HP levels on the daily chart. TLT well above all pivots, with JulP, then Q3P both 135-136; then the 2HP below that about 133. First major resistance is Q3R1 at 143 and change, then 2HR1 is near 146. Also note daily chart RSI extreme with some divergences. 

GLD
As with TLT, the new 2HP levels are not showing on the weekly chart yet. Still, huge run up with a lift above YR1, maybe heading to YR2. Daily chart well above all pivots with first resistance at 130, and both Q3P and JulP near 123. 

VIX
There it is folks! VIX YP holds have been the places to buy stocks this year. Don't wait for YS1 however :) Safe to hold stocks below the Q3P / JulP combo at 18.28 and 18.35 respectively. First support is really too low, down under 10. I doubt we see that, so keep a closer eye on XIV (below) to spot market tops. 

XIV
This has done well as a confirming indicator. Below long term levels correctly bearish to start the year, near test of YS1, fractionally above YP with clear rejection week of 6/6 confirmed a top. Daily chart above JulP but under Q3P, key level to watch for the week. A rejection there along with IWM YP fail would be bearish.

USA main indexes

Sum
Prior week: 2 main indexes above long term levels; 2 breaks; 1 rejection.
This week: 2 main indexes tested and held long term levels, 2 recoveries, 1 testing. 

That is a big time week! The key thing will be if RUT / IWM can clear its YP. IT tried the week of 6/6 but was unable to close above on a weekly basis. Remember the entire rally has been from RUT / IWM YS2 all the way up to YP and since that move the market has been mostly choppy sideways with a 3-4 week drop, 3-4 week rally, 3-4 week drop, now rally again. 

Simple bullish: RUT / IWM joins the others above the YP again. 
Simple bearish: RUT / IWM YP resistance, NQ will drop under its YP before others, and leaders SPX set and INDU will drop back down to test Q3 / Jul Ps. (Due to the structure of the high, low and close of the previous quarter and month, these are currently the same level.)

SPX / SPY / ES
Massive hold of SPX YP. Simple view from here is YR1 target by year end. SPY shows the medium term Q3P as well at 206.83 (SPX 2070 & ES 2063). The only oddity here is that ES YR1 will arrive before the cash index and ETF levels. I wish this weren't the case, but it has to do with the lookback data on the futures. I would like to toss out the long term pivots on the futures and stick to quarterly, monthly, weekly, daily; however, the computer programs definitely trade off these levels even if it doesn't make logical sense. If you don't know what I am talking about, send an email through the contact page and I will explain. 

NDX / COMPQ / QQQ / NQ
This is getting quite choppy now on weekly basis on NDX. After the drop to YS1 we saw YS1 recover to hold on closing basis, rally to YP that cleared and held as support, YP break, YP recovery, YP break, immediately followed by some recovery. First sign of weakness in stocks would be NQ fade back under its YP with the new Q3P and JulP just below. 

INDU / COMP / DIA / YM
The weekly cash index charts look great - definitive hold of YPs. The proximity of YM YR1 is pesky and just one of the hassles of this method. Level to watch although I would weight the sum total of all variants which means ideally we see the cash index & ETF levels for a significant high. 

RUT / IWM / TF
RUT & IWM back to major resistance at their YPs. Key levels to watch for the coming week.

NYA / VTI
NYA recovered its YP slight break of last week, and VTI looks like SPX, slight break and next day recovery. 

Valuation and fundamentals

When I began this project I sought to replicate something I did on a daily basis while working at a hedge fund as a strategist. That version came about after seeing an interview with David Tepper.

The CNBC interviewer was pressing Tepper because the market hadn't made it to the target he had at the last interview. Tepper fired back, paraphrasing here, "No, I didn't say SPX was going to that level, I said it was going to 18x forward earnings which at that time was about that level. And the market reached 18x forward earnings." I don't remember the level but knew the emphasis on forward earnings was something I needed to check, and did. At the time I had a Bloomberg to do so. 

But I no longer have access to a Bloomberg and have lost confidence in this data from the Wall Street Journal. I just don't remember the Bloomberg data flopping around like this. According to WSJ SPX estimates went from about close to 118 first week of June, dropped a bit to about 117, down to 116 mid June, plummeted to under 113 week of 6/24, then immediately jumped back up to 118? 

It seems that WSJ is fitting the estimates to match the price. Maybe it is better to use the Yardeni PDF that has his forward p/e and Citigroup Economic Surprise Index on one chart and comment on that. I think the idea of this project is still valid - everyone on Wall St is watching valuation - but somehow the estimates on the major indexes are not so readily available. 

If you go to the link and scroll down you will see two charts. One is the Citigroup Index based on USD alone, then Figure 2 combines this with forward consensus expected operating earnings per share. He is citing sources of Standard & Poor's, Thomson Reuters and Citigroup. Anyway, according to that data SPX topped out around 17x forward earnings, so these earnings estimates must be higher than WSJ, or they are using a slightly different system of determining "forward", who knows. 

The surprise index continues to not surprise anyone and is chopping around in negative territory. As long as that remains the case safe havens bid and indexes will struggle at resistance. For now I take this to mean Q3R1 - YR1 should be a significant high on SPX if we indeed see that target zone. 

 

E-wave

I am not really an E-wave person compared to the many other dedicated folks out there. And I find pivots far superior tool. That said, I like to dabble from time to time.

It strikes me that we have just recently completed and ideal E-wave up pattern from the 2/11/2016 low to the 6/8/2016 high, and then an ideal down pattern to the 6/27 low, making a complete ideal pattern. The upshot is that we could be in early stages of a completely new move.

First I will outline what I mean by "ideal pattern." Then we'll go back to the larger view for context.

This is just for fun, because the problem with E-wave is that there is always an alternative count. Whereas pivots caught the turn on 2/11, shifted back more long term bullish on stocks near 3/11+, caught the top on 6/9, and recently gave a near perfect turn most especially on INDU and VIX on the 6/27 low. I could go on and on. 

First the labeling of the up portion.

W1 up
W2 down
W3 up that sub-divides; showing up portions, w1, w3, w5
W4 down
W5 up

Now in an ideal move, there will be certain percentage relationships in price and time on the various components. Often W5 will be 61% or 100% of W1. There it was an overshoot of 61% by a little bit for 3 days.

To be clear, this chart measures the move of W1 from the 2/11 low to 2/22 high then projects that move from the W4 low. 61% of that near exact was 211.35. 100% would have been 216.64. 

Timing didn't work so well on this but I'll still show it for the idea. This chart adds the timing of W1 projected from W4 low. W1 was so fast that 61%-100% in time was 6/1-6/3. The top was closer to 200% in time. Of course everything depends on labeling the key low as 2/11 and not 1/20 which would give a arguably valid structure as well. 

At the conclusion of an up portion, the ideal down move is ABC. A is the impulsive move down, B is the corrective move up, C down. C can be 100-161% of A.

A down
B up
C down to finish the entire pattern 

In this case C was just a bit over 161% of A in price. To be clear, this measures the move from the 6/8 high to 6/16 low, and projects it from the 6/23 high. 

Timing is again sloppy due to the speed of the move so I will skip it. Anyway, if this idea is right we are at the start of a new pattern. What might that be? Let's go back to the big picture for context. This idea is outlined in more detail here. 

The larger map perspective (going to SPX cash chart here) is this. 

W1 up
W2 down
W3 up that sub-divides
W4 down
W5 up, now ideally in process from the 2/2016 lows

Using the same price and time 61-100% projections of W1, I have already established an ideal target zone of about 2250-2500 SPX from 2017 Q2 to 2018 Q2 for the final bull market high. 

The problems would happen if we don't get the "ideal" final relationships but a failure or blow-off. If W5 stopped at 38-50% of W1 then we have a failure move of 2080-2165 - already reached! A blow-off would be considerably higher. But rather than be too annoying let's stick with the ideal target zone.

Now I'm going to the weekly chart to show how that W5 on the monthly will play out. Ideally it will itself be a 5 wave pattern. See below!

Probably few are reading at this point but here we have, ideally:

SPX Monthly chart W5 up in process from 2/2016 low, heading to a high of 2250-2500 2017 Q2 to 2018 Q2.
SPX Weekly chart just did W1 and W2 up of that monthly W5; to follow W3.
SPY Daily chart full pattern W1 to W5 up then ABC down constituted W1 and W2 of the weekly; brand new pattern kicking off here.

If all this is correct then we are about to get the last best move of the bull market over the next year or two. This will mean a new 5 wave up pattern on the daily, that will comprise W3 up on the weekly, that is part of W5 on the monthly. Got all that? 

If not keep it simple from my view back in March to stay on the bull side of stocks with INDU above 17048.

Timing model review

Near the end of May I published dates for June. 

"So basically 6/7-9, 6/13-14, then 6/28 mild."

How did it turn out?

6/8 stock index high across the board
6/16 safe haven trading high (TLT, GLD) +2 trading days
6/27 stock index low, maybe major; possible safe haven trading top 6/27-29

Not bad eh? This took me a few minutes near the end May to analyze. But the ability to do that was quite a process; I have been tinkering with this project for a long time. But it is not backtest-able. It is about the furthest one can get from "fundamentals". It is not based on anything else 99.99999% of market participants are doing. Yet with a bit more time, it would be more possible to get direction and further accuracy on these turns. Alas, people are not really interested in something that is truly innovative.

Oh yes, I assure you, for the handful of readers on this blog, I could not possibly be bothered to edit something in hindsight, making it all up.

Anyway, FWIW, keep an eye on these days for July (as I first posted in the last total market view here). 

7/13-15
7/29-8/5 strong

 

Total market view

Last week: "...a bit tougher to have bias with both TLT and GLD more extended, and 2 major indexes NDX 100 cash and NYA both just above YP levels that could easily try to bounce again. ... I will side with the VIX - above Q2P means trouble, hold safe havens and possibly reduce stock index exposure further; below Q2P with safe havens fading means add risk back on."

I find VIX to be usually right on the market, but not last week - Thursday clear down bar from Q2P on VIX, meaning green light for risk back on, only to get slammed on Friday. That said it wasn't hard to spot trouble and if you cut DIA longs near the JunP you had a better exit at least how it looks currently. 

Sum
Safe havens are soaring, as 2 USA mains broke long term levels last week to join the RUT / IWM that is already below. That is bearish action. While I use the term "bear market" very carefully, and will keep to the idea that the bull is more likely than bear with INDU above its YP of 17048, it is also appropriate to be significantly less long stocks with only 2 of 5 USA indexes in long term uptrends, and all 5 below JunPs. 

We'll have 3 new pivots this week, so the biggest change-over date of the year after 12/31. For now levels to watch are VIX YP (just below), NDX Q2P (fractionally below). To translate, market in serious trouble if VIX moves and closes above its YP.

Entries are tougher here, but remember - usually easier to buy what is going up (compared to shorting). But if you really want to short, look for what is below all / most pivots. That means you would already be short IBB, then IWM would have been first choice on USA indexes.

Expanding to global indexes, NKY would have been first choice (although EWJ does not move exactly the same). Among more easily traded vehicles, EFA, FXI and EEM below long term levels or all or most of the year. 

Pivots
It is proper to shift more defensive with only 2 of 5 USA mains above long term levels, safe havens soaring, and most global indexes I track below long term levels as well. If you have cash on the sidelines having recently cut longs, the choice will be to add back on bonds or GLD/GDX, or look for shorts. Keep in mind 3 new pivots from 7/1.

Other technicals
Monthly 20MA breaks underway for SPX, NDX, COMPQ, INDU, COMP; and already acting as resistance for RUT & NYA. The close is a good time to check monthly and quarterly charts.

Valuation & fundamentals
Continue to cap upside, with the 12 month forward P/E on SPX still at 17.93 making 2045 resistance. 

Sentiment
I pointed to sentiment extremes just after the 6/8 top, but that wasn't the case on 6/23. Now we'll be watching for bear extremes on any low. Put-call is already quite elevated, and those who hedged their longs with options did quite well on Friday. Usually important lows have more than one of the four I track at extremes. 

Timing
Dates for June that were listed at the end of May:
6/7-9; 6/8 the high in USA and some global indexes
6/13-14; looks like miss (while I will allow for +/-1, +/-2 really just isn't good enough for the safe haven trading high)
6/28-30; may become some stock low next week

July dates
7/13-15
7/29-8/5 strong
 

Safe havens

Sum
I cannot remember a time when ALL of these safe havens seemed to be giving the green light for risk, then to be so wrong. Usually if there is any doubt asset managers won't mind parking some $ in bonds, but TLT did look like real selling with Q2R1 exact on the high, then break of YR1 & 1HR2, all with a daily RSI spike. GLD also looked like real reversal from levels. What really bugs me is the VIX, as that met all conditions for stock buy on Thursday. Oh well - it was a real surprise. 

2 larger points worth mentioning:
Give the trend the benefit of the doubt when the asset class is above yearly, half-year and quarterly levels (ie TLT and GLD) both met this criteria for much of the year). If you get a good entry, hold some portion of the position as long as this condition is met. 

Keep focus on status of above / below all / most pivots, rather than trying to short resistance levels or buy support. The surprises in an uptrend will often be higher, and the surprises in a downtrend will be lower. Maybe you would have locked in some gains on TLT or GLD/GDX longs with rejections from long term levels, but at least you would not be short!

TLT
What a difficult move. TLT really looked like level rejection with a clear push down from YR1 on 6/21. OK, volume was a bit on the lower side but not drastic. Anyway, weekly close back above the YR1 so that makes 3 weeks in a row with close above that level.

Again let's remind ourselves of a basic fact - when looking around for things above all pivots, TLT has had this status for much of 2016. If you lower the bar to above 3 / 4 pivots (not including weekly or daily here) then all days of 2016 except for 7 trading days. 6 of those 7 were 2 / 2. TLT will likely be above all pivots to open the second half, where stocks will almost have to be mixed.  

GLD
Again what a tough move. That was real pro selling on 6/16 from Q2R1, 1HR3 and a full reversal bar on volume. Just a reason why I start with status above all pivots / below all and emphasize yearly, half-year and quarterly pivots, because twice GLD has come rocketing back after pullbacks that looked like the start of larger drops. Yet both times the only level to break was a monthly pivot. 

VIX
The YP may test next week. Again Thursday looked like green light for stock longs with clear push down from the Q2P that closed under the previous day's low. Next day above the Q2P all day said trouble for real. 

XIV
Like RUT / IWM, XIV has been more bearish since the 6/6 week. Below all pivots is more bearish for stocks, so the Q2P is in play until the changeover on 7/1.

USA main indexes

Sum
Prior week: 2 main indexes above long term levels; 2 testing; 1 rejection
This week: 2 main indexes above long term levels; 2 breaks; 1 rejection. 

So the Tech set (NDX, COMPQ, NQ) and NYA institutional index both broke their YP / 1HPs last week. Long term levels breaking is a big deal, especially since it will be the 2nd or 3rd time this year depending on the index. This is the kind of thing that happens at the end of long term trends or before a definitive move. However, the leaders on this rally have been INDU first and then SPX, so I will refrain from using the term "bear market" until the leaders break down too.

I believe this is the proper perspective, as it kept you on the right side of the market from 2009 Q2 all the way to 1/7/2016 excepting 2 days in 2011. To put it another way, if the leaders hold major levels in crisis points then the bull market is alive. 

That said, it is also proper to be a lot less long USA stocks with only 2 of 5 above long term levels and all below JunPs. If wanting to throw on shorts, IWM was the easy choice among USA mains, although if including others IBB has been below all pivots since 6/10. 

* * *

SPX / SPY / ES
SPX looks like it will test its YP. The current ES contract is already nearly there, while SPY level is lower. The discrepancies are mostly due to the 8/24/2015 spike low on SPY, and the look-back period of the futures. This is a bit pesky as ES could break while still be above on cash and SPY, so this is why i analyze all these variants and total them all together for the real larger trend. The red line on SPY chart also shows the 2015 close (ie down for the year below that line). 

NDX / COMPQ / QQQ / NQ
Ugh, 3rd real YP break of the year. That's bearish. While anything can happen, ie maybe it will recover, for now NDX, COMPQ and NQ are below all pivots (just below the Q2Ps). QQQ is sitting on its YP (again discrepancy here due to 8/24/2015 spike low).

INDU / COMP / DIA / YM
COMP giving great signals here with the clear closer test high below 1HR1 early in June. Of the main indexes, INDU has been the leader this year so as long as the leader is above its YP then we cannot call it a bear market. To put it another way, bulls have a shot with the INDU above its YP. It is hard to know how much to weight that YM YR1 since the other variations are quite far from their respective levels.  

RUT / IWM / TF
There is the YP rejection on RUT. The weekly chart makes it look an easier move to catch than it was. IWM was slightly above the YP for the 2nd time this year on Thursday, then slammed on Friday. 
 

NYA / VTI
2nd break of NYA long term levels this year. VTI still above. Both have given good signals this year. NYA while bearish doesn't quite yet have the "look of rejection" like RUT / IWM.

Fundamentals and valuation

I started tracking this in March 2016 using data from WSJ. Estimates fluctuate so we are watching the overall pattern and how price responds to levels. This is how my spreadsheet looks from April.

Date / SPX 12 month forward earnings estimate / Close SPX price / p/e ratio
4/01/2016   118.51   2072   17.49
4/08/2016   117.61   2047   17.41
4/15/2016   112.47 2080   18.50*
4/22/2016   117.50   2091   17.80
4/29/2016   117.01   2065   17.65
5/6/2016   116.95  2057   17.59
5/13/2016   116.15   2046   17.62
5/20/2016   117.21  2052   17.51
5/27/2016   118.26   2099   17.75
6/03/2016   117.86   2099 17.81
6/10/2016   116.97   2096   17.92
6/17/2016   115.90   2071   17.87
6/24/2016   113.63   2037   17.93

Aside from 4/15 the p/e has stayed in very tight range from 17.5 up to 18.0. Despite the drop last week, according to these estimates the p/e is actually higher! I'm not sure how these estimates work but there must be some currency factor involved to move that quickly. (I'm not sure about the *d week of 4/15; i cannot go back and check the data.)

*

No real change to Citigroup Economic Surprise Index - chopping below the zero line. 

I have said all year that these two factors likely put a lid on upside, but also thought that we would probably see major levels for a big top. Brexit seems to have thrown that off. 


 

Total market view

Last week (check the tag): "... *usually* monthly pivots are not enough for a major top (SPY, DIA, IWM and NYA all near JunR1s then down last week). But a few other components of my Total market view are considering if we just saw a turn of more significance. I don't have a strong bias as to what will happen. Safe havens could soar and stocks fall further, or safe havens drop down as stocks bounce back. In recent weeks long USA stocks AND safe haven positions in TLT and GLD/GDX has been the way to go - all of these above all pivots as of various dates. Although if I had to chose a bias, I would say the former: safe havens up as stocks drop further."

And that's how it played out folks, with indexes lower and safe havens higher. If you had the idea to buy strength, then back in (or adding) TLT 5/31-6/1 with any spare cash, then GLD 6/3-6, GDX 6/3. You had reasons to reduce stock index per VIX & XIV warnings 6/10+ as all 5 USA indexes topped out on JunR1s. See previous total market view posts for additional points on sentiment, valuation and timing.

Sum
This week is a bit tougher to have bias with both TLT and GLD more extended, and 2 major indexes NDX 100 cash and NYA both just above YP levels that could easily try to bounce again. Bullish sentiment extremes on put-call and ISEE were worked off in a hurry, and AAII individual bears are back near levels just off February lows! Yet valuation and fundamentals should continue to cap the market, and this week some political event risk (Brexit) adds who knows factor with maybe a big gap on Friday. 

I will side with the VIX - above Q2P means trouble, hold safe havens and possibly reduce stock index exposure further; below Q2P with safe havens fading means add risk back on. Best choice is the striking relative leader, the only index I track above all pivots, SOXX. 

Pivots
Most points have been made in USA main index and Safe haven posts below. Let's state the basics though - no USA main index is above all pivots, and safe havens TLT and GLD are both well above all pivots. I don't have the time to discuss world indexes frequently, plus trading vehicles for NKY and DAX then have to consider currency, but these indexes are below all pivots! 

NDX100 and NYA YPs are the big levels watch. While I won't declare "bear market" until market leaders INDU & SPX have clear rejections from long term levels, it would be more negative to have popular tech stocks and a broad institutional index back under YPs, yet of course bullish if they hold from here.

Other technicals
Last week I pointed out the monthly close high in SPX reached 5/2015 at 2107 adding to resistance. SPX has tried to lift above its monthly 20MA for the last 4 bars and hasn't gotten far. NDX and COMPQ are already breaking, though we won't have final values until the close. As we approach month and quarter end, I find it useful to check status and slope of the basic moving averages.

Sentiment
I noted 2 sentiment extremes just off the top - until entire market taken over by machines, this continues to happen. These have been worked off, although not yet close to seeing at least 2 on bearish extremes to help form a risk low.

Valuation and fundamentals
Same story, capping the market. SPX p/e after last week's drop is nearly the same, which means earnings estimates were revised lower. For now SPX 18x resistance 2086.

Timing
Dates for June that were listed at the end of May:

6/7-9; 6/8 decent  turn in USA and some global indexes
6/13-14; looks like miss (while I will allow for +/-1, +/-2 really just isn't good enough)
6/28 (mild)

I'll add dates for July next week. Don't ask about backtesting, but we have had timing windows that were directly noted or published in advance on the stock low of the year 2/11-12 and the current high 6/8. 

Safe havens

Sum
6/4: "VIX and XIV look quite bullish for stocks. TLT and GLD say the opposite. We've seen this condition before this year, but that's an odd market. Hard to be full on bullish in stocks with TLT so strong and GLD back above all pivots as well."

6/11: "all 4 of these safe havens sending warnings about risk."

Now for this week

TLT and GLD have reached medium term resistance with daily chart RSI near extremes, increasing the chance of a turn. But both are even stronger per the long term levels so I believe correct to be bullish above support. VIX and XIV both moved confirming trouble; for now risk will be more appealing with VIX dropping from Q2P, but if above that expect more trouble. 

* * *

TLT
Toppy looking bar on the W chart, but above both YR1 and 1HR2 is bullish. Daily chart top on Q2R1 near exact along with JunR2, but could hold 1HR1 / YR1 / JunR1 as support. Daily RSI highest since February is turn alert, but given this is the strongest trend in the market best to stay bullish above support. 

GLD
After what looked like rejection at the 1HR2 / YR1 combo, GLD bolted back up to the highs with 3 strong advances. Last week closed bang on 1HR3. Daily chart shows top on Q2R2 near exact and level to watch at the prior high 1HR3. Daily RSI also up there. 

VIX
VIX long term levels are quite wide due to last years spike. Slightly below Q2P but no rejection; that's the level to watch for the coming week. 

XIV
There is the XIV YP slam that helped confirm stock index reduction (take profits, hedge or maybe some shorts). If lower watch the Q2P.

USA main indexes

Sum
Prior week: 4 main indexes above long term levels; 1 testing - (with a negative). 
This week: 2 main indexes above long term levels; 2 testing; 1 rejection

As you can see from the basic summary, a bearish shift in the past week. What happened? RUT / IWM set clear rejection from long term levels. 2 indexes weakened from above to testing - the Tech set NDX / COMPQ / QQQ / NQ, actually COMPQ under YP already though I am weighting the NDX 100 which is bang on the level so "testing"; and NYA actually broke its YP for a bit but rallied back.

From there we can use medium term levels; most mains topped near JunR1s, and now they are all below JunPs. 

Simple bullish: NDX & NYA hold YP; DIA and NYA then SPY would be first back above JunPs. 
Simple bearish: NDX & NYA break of YPs, further declines as main indexes move down to JunS1s. 

* * *

SPX / SPY / ES
SPX per long term pivots still looks fine, with decent chance of reaching the YR1 area. As it turned out the 1st half pivots were very near the yearly, but soon we will have new versions for the second half which will likely be different values. After reaching a top near JunR1, the daily charts show a pullback to the JunP, not much bounce, a rally attempt then a break. 

NDX / COMPQ / QQQ / NQ
Another test of the NDX YP, and COMPQ is already below! Daily charts show clear QQQ JunP resistance since 6/13, and NQ already below both JunP and YP from 6/13-14 as well. 

INDU / COMP / DIA / YM
INDU, DIA and YM all don't look too bad here; no major resistance, and while breaking JunP slightly no clear look of resistance like QQQ and NQ above. That said COMP is more bearish due to the red bar rejection from long term resistance at 1HR1. 

RUT / IWM / TF
RUT and IWM long term levels rejection is bearish. IWM held the JunP exact and futs also have some support there, but I would weight RUT and ETF long term levels here.

NYA / VTI
What a save by the NYA - could have broken YP / 1HP but didn't. VTI looks more like SPY and DIA, high on JunR1 and pullback slightly below JunP. 

Valuation and fundamentals

While I will continue to track the main index forward p/e and fundamentals per the Citigroup Economic surprise, because a majority of market participants ARE influenced by earnings and the strength of the economy, given the action in the bond market we have to allow that perception around valuation may change with the strong-arm influence of the central banks. 

Let's be honest, that has already happened - people wouldn't be paying 18x forward earnings in this low growth environment if bonds were paying out 5% in interest. But with interest so low, and so much global debt negative, we are seeing higher than historically appropriate prices for risk assets. Maybe at some point we will see above 18x and head up to 20x. 

For now 18x continues to cap the market as it has throughout the last 1.5 years, except the seasonally bullish Q4 in 2015 when we briefly saw up to 19x near the early November highs.

To repeat the standard statements:
Data from WSJ
Fluctuations sometimes noise sometimes real
I've been expecting resistance at SPX 18x forward earnings throughout - no change to this view

Prior week SPX forward p/e 17.92, this week only 17.87 despite a decline in price. This means earnings estimates per this data set were lower, from about 117 to about 116. Earnings estimates have been ticking down since a high value on 5/27/2016. 

Current 18x resistance is 2086, potential 17x support 1970. Other USA main indexes had similar moves.

*

Citigroup Economic Surprise index per Yardeni basically same condition - below the zero line. Yardeni must be using different p/e system than WSJ. As I recall the WSJ data lines up more closely to Bloomberg, and it is working, so i will stick with it. 

Total market view

Last week: "With the strength in 2 of 4 safe havens, I am a bit less bullish on USA stocks and think risk of some fade from RUT / IWM YP area has increased. At the same time, all 5 USA main indexes are above JunPs and VIX / XIV area unconcerned so one cannot be too bearish either."

DIA and VTI reached JunR1s near exact; SPY near test just shy, and IWM 1 day overshoot then fell back. So that is 4 of 5 USA mains testing JunR1s and retreating from there. Also, after RUT / IWM cleared YP for 4 trading days  Friday fell sharply and back under the level. 

Sum
As I have been saying the last few days in daily SPY commentary, *usually* monthly pivots are not enough for a major top (SPY, DIA, IWM and NYA all near JunR1s then down last week). But a few other components of my Total market view are considering if we just saw a turn of more significance.

I don't have a strong bias as to what will happen. Safe havens could soar and stocks fall further, or safe havens drop down as stocks bounce back. In recent weeks long USA stocks AND safe haven positions in TLT and GLD/GDX has been the way to go - all of these above all pivots as of various dates. Although if I had to chose a bias, I would say the former: safe havens up as stocks drop further. 

If stocks index hold above all pivots then proper thing to do is hold positions. If they break, then can hedge or reduce. IBB is actually under all pivots (the only index I track with this status), and if stocks go lower in the coming week QQQ will probably break JunP before SPY, DIA, and NYA/VTI. One could also short against IWM if it falls under the 1HP too, although this more of hedging idea than trade since below long term levels ie 2 pivots and above medium term levels ie 2 pivots. Above 2 / below 2 is not much edge either way, though if choosing I'd go with the larger long term levels. 

Pivots
Levels to watch on USA mains: IWM YP / 1HP most important, QQQ JunP, then other JunPs. On safe havens TLT YR1 acting as support could be *very* bullish for TLT. 

Other technicals
There are many ways to calculate support and resistance and obviously from this site I am focusing on pivots. But close values can also work on daily, weekly, monthly and quarterly bars. The monthly close high for SPX is 2107, achieved 5/2015. So it adds to bearish concerns for the index to try to clear that then fall back below. 

Valuation & fundamentals
I have been pointing to 18x forward earnings for SPX as resistance all year. This value will change per fluctuation in earnings estimates, but for the prior week it was 2121. the high was 2020.55; this is not a coincidence! For the coming week estimates dropped and 18x is down to 2105. 

Further, fundamentals just cannot really get going in full gear. Why should we expect to see SPX 20x earnings with fundamentals weak along with election and FOMC risk? This means the rally could and should stop near this 18x area, and what can change is the estimate.

Sentiment
Last week 3 of 4 sentiment readings reached into excessive bullish territory. Crowd bearish at the lows, bullish at the highs. Until the entire market is taken over by machines, this is how it works! See the recent sentiment post for details.

Timing
Lastly, I had 2 important and 1 less important timing areas for June (published end of May):

6/7-9; so far 6/8 decent  turn in USA and some global indexes
6/13-14
6/28 (mild)

So, although 3 indexes on monthly pivots and 1 on yearly, valuation, sentiment and timing are all pointing to the possibility of a more important top. 


 

 

 

Sentiment

I don't have time to do a sentiment post each week, but will try to mention when we see extremes.

There are 4 things I track - put-call, ISEE, AAII mgrs and AAII individuals. Last week 3 of these were flashing warnings for the bulls. 

PCC D with 10MA
Near relative low area. Red line the low reached on 6/8. You can see only a few trading days below this level for the last year!

On the same day 6/8, ISEE spiked up to its highest value this quarter. (No chart.)

AAII managers had gotten back up there too, with only 1 higher reading on 4/20 in the last 12 months. 

Safe havens

Sum
Last week: "Hard to be full on bullish in stocks with TLT so strong and GLD back above all pivots as well."

This week we saw TLT close above its YR1 for the first time all year, GLD jump from its YR1 with the look of support, VIX move strongly above its JunP and XIV clear rejection from YP / 1HP combo. In other words, all 4 of these safe havens sending warnings about risk. 

* * *

TLT YR1 / 1HR2 combo resistance since the 2/11 turn. Confidently testing again and first day close above the YR1. After being sideways for 3 months, June straight up so far. 

GLD
GLD also back in gear above the YR1 / 1HR2 level. YR1 looking like support is bullish. GLD D looked like it would test Q2P then jumped and already back near the highs. 

VIX
VIX pretty clearly sending the alert since 6/7, although the move began before tagging JunS1. The big jump above the JunP shows trouble for real, at least on Friday. Keep in mind that none of the indexes are below their JunPs, so VIX is currently sending a pivot warning sign. My view - trouble serious if above above that Q2P! 

XIV
And that is rejection of the YP / 1HP!

USA main indexes

Sum
Last week: 4 main indexes above long term levels; 1 testing.
This week: 4 main indexes above long term levels; 1 testing - . 

Testing with a negative is referring to the Russell, that tried to clear its YP and did for 4 days, then got whacked and dropped back under the level for the weekly close. It is hanging on to 1HP however. Anything lower will look more bearish.

The Dow COMP has also given good signals this year and put in a toppy bar under 1HR1. 

DIA and VTI reached JunR1s and fell back. While all the main indexes are above JunPs, the tech set is already testing and given the market it will be interesting to see if those hold. When above pivots I force myself to be bullish, but I would not be suprised at a break here. 

Simple bullish = RUT / IWM holds 1HP and back above YP, NDX / QQQ hold JunPs and up from there.
Simple bearish = RUT / IWM breaks 1HP, NDX / QQQ break JunPs and drag others lower. 

* * *

SPX / SPY / ES (new U contract)
SPX had some selling near the top of the range but the pivot and weekly chance view is not bad; no pivot resistance and 2 small red bars could be a pause. SPY actually did not tag its JunR1 so limit orders there would have been unfilled. Still above all pivots and perhaps we will see a test of JunPs. 

NDX / COMPQ / QQQ / NQ
Still above all pivots, but already testing JunPs. Obviously an important level to watch next week. 

INDU / COMP / DIA / YM
INDU not at any pivot level, but that COMP chart does look like a drop is the next move. DIA reached JunR1 and down from there; still above all pivots. 

RUT / IWM / TF
RUT tried to clear its YP but didn't; so far hanging on to 1HP - very key levels to watch from here! IWM also showing 1 day overshoot of JunR1 then down, also below its YP while holding 1HP.

NYA / VTI
NYA came close to reaching Q1R1 but not quite; still above all pivots. VTI exact tag of JunR1 and down.