Relative strength and weakness

There are various ways of spotting the leaders and laggers in the market. You can use highs and lows, for example which index makes a new high before another, or new low before another. This has the advantage of being visual. Or you can use percentage moves, but this takes a lot of calculation and unless you have some impressive system it is harder to measure from highs and lows, although easier to measure by week, month, quarter and year. 

With pivots we are considering relative strength and weakness. For example, INDU has made a new all time high on this rally and NDX hasn't yet, but in the last few days especially NDX has led above INDU. Check them out.

INDU held the YP exact, then found support on the Q3P / JulP with 2HP just underneath for a major buy area. It zoomed up to Q3R1, next day jumped above, then rallied to JulR2. It fell back from there, but still holding Q3R1 as support. 

NDX (and I am using both cash indexes here to compare apples to apples) broke its YP and actually under all pivots for 3 days, so you wouldn't be thinking first choice to buy unless you used other techniques. INDU beat it to the Q3R1 by 1 day, and NDX had 4 day pause where INDU simply hopped above it. Since then, however, NDX has zoomed all the way above its 2HR1! INDU is nowhere close.

Due to structure of highs and lows last year, INDU will reach its YR1 far before NDX. But for now we can say NDX has resumed market leadership because it reached long term resistance faster than INDU, despite the fact that NDX is below its all time high and INDU is above. This is a bullish development for the markets. 

Oil

I used to do a weekly post on oil and caught the low here. I am showing the original post right on 2/12 to prove that this wasn't just a hindsight fantasy. No rewind on data chart feed!

Oil had another 2 month rally from early April lows to 6/8-9 highs. After a choppy rest of June, July has been down hard. To my surprise, 2HP didn't even try to bounce. 

If oil keeps dropping then stocks more likely to fade, and safe havens resume rally. Oil related vehicles like EWZ and RSX that have put in massive rallies this year should drop, as well as XLE. But if oil rebounds then USA stocks likely continue higher, safe havens maybe more in range, oil related obviously supported too. 

For oil we can look at the current contract, but with the rollover I think CL1 continuous is really the definitive chart. We can also look at the ETF USO if we wanted to be thorough. 

CL1
Weekly chart with long term levels here. The low was basically a slightly lower low / re-test on YS1 / 1HS1 combo. It rallied to YP / 1HP and after some shuffle went all the way - almost! - to 1HR1. Then fell back to support. YP has broken but I thought the 2HP would at least try to bounce somewhat but instead has caved barring a big rally today which seems unlikely. 

Here's the daily chart view with medium term level pivots added. The high was on Q2R1 exact and the YP tried to bounce several times, but look at all those small blue bars (weak buying) before the breakdown. 

Daily RSI is the lowest since February and as it turns out DL1 is bang on its daily 200MA here. This is a bad setup for a short, which is just late no matter how you slice it. In fact, the risk-reward here is to play for a bounce, but why waste time trying to buy something below all pivots? Focusing on buying what is above all pivots, as usual, has been the best strategy. 

Total market view

Last week sum: "Momentum move likely done or will be soon, but that doesn't mean the high is in. Just means market likely to slow down. A digestion week would be completely normal and healthy. If you are longs stocks then you don't want to see big rejection from SPX YR1 along with a big jump in safe havens. Until that happens better to stay long although the more things that check off on the top list the more likely the better decision is to take profits or hedge. Right now there are a few, and perhaps we are due for a minor pullback, but I don't think enough for a big position change."

Not bad eh?*

Sum
I'd rather see stocks go a bit higher so we can see the INDU set tag its YR1 along with XIV YP, daily chart RSIs reach 70 area, SPX tag its monthly Bollinger band, a bullish capitulation on the one sentiment holdout that isn't frothy yet. 

If this plays out, then consider the items on my market top checklist. 

FOMC
Let's consider. Meetings the rest of the year are 7/26-27, 9/20-21 with a press conference, 11/1-2, 12/13-14. 11/2 is a non event due to election. I don't think Yellen wants to tighten screws advance of election, but if H wins and economy continues to show strength then she'll be clear to raise rates in December with the presser. If she wanted to play good cop bad cop with the market, she would be a bit more hawkish here, dovish in Sept, then see what happens at the election. But hawkish FOMC may not bother stocks - financials would improve, bonds drop, and market could take it as sign of confidence. This would be bullish USD, bearish GLD, potentially bullish stocks and bearish bonds, or at least this is my guestimate. All this FWIW, because there have been times I've thought she would hint at rate hike only to be a huge dove. Always a reason to not take the medicine. 

1. Pivots
USA main indexes
So far bullish action as SPX set halfway above its YR1s, and 3 others clearing Q3R1s which now can act as support. The big level ahead is the INDU set YR1 which could turn out to be as important, or at least nearly so, as YS1. Possible. 

Safe havens
TLT & GLD still strong above all pivots. VIX and XIV giving all clear for stocks. 

Global & other
EEM joined EWZ and RSX above its YP. 7/14+ was the first stretch for EEM to trade above its YP since 6/2015. EEM strength is bullish. 
NKY, DAX and other European indexes the weaker links, but these indexes as well as benchmark EFA above 2HPs. So, more bullish than bearish. 
CL1 broke its YP slightly but above its 2HP. Oil has had massive plunge and as long as it is above at least one long term pivot I'm not worried about it resuming. 

2. Other technicals
On this kind of move we should see leaders reaching RSI overbought on the daily chart at least, and perhaps even a few times. Not yet. 

3. Valuation & fundamentals
Fundamental improvements per Citigroup Economic Surprise index confirming breakout. I've been watching for this all year, as everyone else who uses this too. 

4. Sentiment
Extremes reached on 3/4 indexes I track, increasing chances of a larger turn, correction or at least long sideways period. 

5. Timing window
7/29-8/5 one of the stronger periods of the year and has been listed since end of June. 

* Check tag for prior sums. I don't always have a strong opinion, but I've been doing pretty well. 
 

 

TPP's market top checklist

Version 2. See last week's version here. Perhaps this will become a series :) In fact I like this idea and will create a tag.

Edits to conditions from Version 1 added in italics. 

Sum
Not calling a top yet, but some conditions for a top approaching and/or more in place. 

1. Multiple major USA indexes at major resistance, then rejections? VIX / XIV alert?

So far SPX set halfway clear, and if stocks go higher then INDU set YR1 will be in play. Just because we're at a level doesn't mean a turn though - like SPX YR1 turned into support without too much trouble. So we have to see rejection to really call a turn just like we need to see pivots / support hold before a confident low is in too. 

Still, INDU YR1 could turn out to be as important as YS1 - these things happen! If it is going to be a major turn, then we should see multiple indexes at resistance and VIX / XIV alert. This hasn't happened yet. VIX and XIV still saying all clear. 

Bottom line - big levels mean turn possible, but so far SPX set more bullish by clearing on the cash index and current futures. Other indexes - Tech set, IWM and NYA have cleared Q3R1s too. No rejections. No VIX / XIV alert. Not a top yet. 

2. RSI estreme reached? Negative divergence? Bollinger bands in play, or divergence? (ie "other technicals)

The only charts with RSI extremes are quarterly and timeframes under daily, ie short term 4 hour, 2 hour, 1 hour.  I am not too worried about quarterly chart overbought because this is what happens in bull markets. I am more concerned if we see divergence, a move stopping bang on 70, or a reversal bar. INDU could be worth watching because right now the quarterly chart does look like divergence as RSI slows to 70. We're only a few weeks into Q3 though and a lot could happen before this bar closes and the RSI finalizes. 

Keep in mind that SPX RSI is currently 73, bullish to be above 70; and NDX RSI has been 69+ from 2013 Q3. Like I said, quarterly chart RSI overbought is what happens in bull markets. It is divergence that you don't want to see, and if you get lucky to catch a blow-off move 80+ then it is just a matter of managing trailing stops. 

Daily charts will likely reach RSI OB soon, so I'll be watching to see how market responds.

Simple answer to RSI - not yet. Daily, weekly and monthly charts room to go higher.  

Turning to Bollinger bands, USA indexes responded positively to weekly bands ie blast through, and SPX is now close to tagging its monthly band. As these start to slope up the index can push the band. Response to bands and divergence is what I am watching for - so far market is OK. 

3. High tested with at least 1 lower high?

Friday could be seen as high test or middle of up depending on what happens next week. But still, not really and no lower highs. 

4. Safe havens showing concern? 

Mildly with the bounce on Thursday and Friday. 

5. Breadth or volume divergence (adv / dec volume is my favorite)

Mildly with the pause week last week, but strength in NYA / VTI, RUT / IWM and ACWI help alleviate breadth concerns. 

6. Sentiment extremes reached?

Yes, definitely. 3 of 4 meters I track now have reached significant extremes. These show on shorter term timeframes, but not on longer term moving averages. See recent post. 

7. Valuation / fundamentals? 
Many would argue this is most important, but I believe information will show in charts first -  although the Citigroup Economic Surprise index did a great job confirming the stock breakout. Valuations on the higher side, but in later stages of 2009 bull market maybe we will see SPX forward p/e near 20 especially if political concerns ease in the fall. 

8. Timing window?

I don't get them all and some turn out to be non-events, but several major turns this year have been in timing windows identified in advance. 

2/11-15 stock low / bond high
6/8 stock high
6/28 (missed by 1 day and magnitude)

July dates as listed from end June have been:

7/13-15 looking like short term momentum top and/or non event
7/29-8/5 strong

7/29-8/5 looks like one of the stronger timing windows of the year. It may not be a final stock market high, as those are more likely in Q4-Q1, but could be a decent top if we see INDU stop bang on its YR1 in that period, along with sentiment going bonkers. Let's see. 

Safe havens

Sum
Safe havens TLT and GLD have worked off RSI extremes (especially in the case of TLT) but so far still above all pivots. Safe haven strength would probably coincide from a rejection of SPY YR1 or if stocks higher INDU set YR1.

The ideal move would be for safe havens to drop down to test pivots, as stocks go higher and INDU gets to reach its YR1. But this may or may not happen. 

VIX worked incredibly well on the major stock lows of the year. Check the chart below for yourself - the key turns have been as the YP holds as resistance and then VIX drops from the level with a big move. As long as VIX is under pivots, stock trend is up. We are very unlikely to see VIX major support at a stock top, because it is just too low. Medium term support more possible in August with new pivots. This will be something to watch along with any USA main index resistance levels. Similarly, XIV YP could come into play soon. 

TLT
Weekly stopped shy of reaching 2HR1. Lots of support underneath at the 2HP / YR1 combo 133-134. Daily chart shows the high (where we issued a very rare speculative short) on Q3R1, but the recent low didn't even test the JulP yet. So medium term support 135-36. Until we see TLT below pivots, trend is still up. Even then, it will probably take 2 or perhaps 3 pivot breaks, and/or a major long term level acting as resistance before a real "short and hold" style downtrend. Even if you took this trade, if it distracted from getting max long 7/6 area on USA indexes then it was a waste of time. 

GLD
Weekly chart also stopped shy of reaching long term resistance; note RSI overbought or near enough 3/7, 4/25 and 7/4. Like TLT, GLD made a trading high on the Q3R1 / JulR1 combo, and hasn't tested any pivot this month. 

VIX
I'll be saying this every week... this VIX weekly chart is a thing of beauty because that YP which held on a closing basis the entire year helped confirm the key stock buys of 2016. That said, it is very unlikely we'll see long term support for the stock top! We probably won't even see medium term support, but in August the pivot will be lower and perhaps support level will be in reach. 

XIV
It bothers me that this is so different from VIX, but I don't fully understand the calculations. No matter, I know that signals here are worth heeding too. XIV has launched from its 2HP but still under its YP, which could be an interesting area to watch along with INDU YR1. Daily view adds even more resistance there with Q3R1.

USA main indexes

Prior week: "All 5 main USA indexes above long term pivots. Of these, SPX is already testing major resistance; INDU not far away."
Last week: SPX halfway clearing resistance, INDU major resistance still ahead. Other 3 - Tech set, RUT, NYA all above support and not yet at major resistance. 

So the big levels in play are the SPX set YR1s - still resistance for SPY and ES1, but price has cleared on SPX and ESU versions. Aside from COMP, all of the INDU set YR1s lie just above. This will be a major test for the market, and could be as important as the YS1. Why not?

SPX / SPY / ES1 / ESU
2 of these already above, 2 testing with no sign of rejection. As long as SPX stays above YR1 2163, then 2HR1 2209 is doable. 

NDX / COMPQ / QQQ / NQ1 / NQU
Across the board, these look on the way to 2HR1s. 
 

INDU / COMP / DIA / YM1 / YMU
INDU set YR1 could be as important for markets as the YS1. Just saying!

RUT / IWM / RJ1 / RJU
Weekly close above YP on RUT confirmed the full on bull market, with all USA main indexes above all long term pivot levels. More bullish for markets if IWM holds Q3R1 as support from here.

NYA / VTI
NYA looks very healthy here, with July launch from YP / Q3P / JulP combo, fast move up to Q3R1 / JulR1, and a clear on Friday gets us thinking about YR1 / 2HR1 / Q3R2 combo near 11100.

Valuation and fundamentals

Thomson Reuters lists the 12 month forward p/e as 17.04. Per Ed Yardeni, there is only one time higher than this in the last 10 years and it appears to be in Q1 2015. If we make it to 18x per these numbers, then we'll see 2300.

WSJ is listing the 12 month forward p/e as 18.39. I am a bit suprised to see 18+ before the election, but it is what it is. 19x at 2247 and 20x at 2365. 

Fundamentals are a bit more clear - the Citigroup Economic Surprise Index has turned sharply higher into positive territory after spending 18 months below the zero line. As longs as this is going up, dips will be bought. 

E-wave update

See the tag for the series. 

Monthly chart in W5, the last wave up of the bull market that began at the 2009 lows. 

W1 up
W2 down
W3 up that subdivided
W4 down in a zig-zag
W5 up in process

After this is over, we should a monthly chart ABC correction, ie bear market. 

If W5 = 61-100% of W1 (classic E-wave idea) then we have a price target of about 2250-2500. W5 failure target of 38% has already been exceeded, and we're even above 50% right now. I think a 161% blow-off move to 2940 is extremely unlikely.

If W5 = 61-100% of W1 *in time* then we arrive at 6/2017-4/2018 for the big top. 

So the ideal is 2250-2500 from 6/2016 to 4/2018. This may or may not happen, but would be nice if it did.

Weekly chart commencing W3, the best, most steady up move. This 'should' have more to go as W3s usually exceed W1s in both price and time. If labeling correct, W3 just shy of 61% in price and not even 38% of W1 in time. Of course, with monthly chart in W5, then any other common chart topping pattern like head and shoulders, double top, etc, could be quite important. That hasn't happened at all yet though. 

Daily chart has just started a new wave pattern after completing an ideal up pattern from the February low to the June high, then an ideal down pattern into the 6/27 low. 

"Ideal" up means we see W1 up, W2 down, W3 that sub-divides, W4 down, W5 up. There are price relationships between W2 and W4, and near enough on W1 and W5. Then an ideal ABC down pattern has price relations with A, B, and C, with the perfect being B = 61% of A and C = 161% of A. This one was pretty close to that. Once an ideal up and ideal down pattern both complete, then a new pattern begins. 

So that means the first thrust of 6/27 to 7/1 is W1, and now we are in W3. We are already at 161% in time but still shy of 100% in price. 

Bottom line I want to be bullish here as I think W3 on daily should go higher, and W3 on the weekly also "should" have much more to run. That said, we are at YR1s SPX and INDU with sentiment extremes so have to consider the possibility of at least a trading high if not major high. 

Sentiment

It's been a while since I've done a complete version of sentiment analysis, and this week with SPX and INDU near YR1s this is a good time. I use 4 components: put-call ratio, ISEE index, NAAIM exposure index and AAII survey.

Sum
Daily put call at bullish extremes; weekly not
ISEE daily spike readings at bullish extremes; MAs not
NAAIM exposure index at bullish extremes, period
AAII individuals, savvy bunch, few bears but not historically high bulls either. It would be nice too see capitulation here to have extremes across the board

Tops can stretch out. Maybe we've just seen the high, maybe not. But if not with these extremes markets could easily be in a range for a month even if it manages to go somewhat higher. This would allow the longer term sentiment averages to go higher even if the shorter term measures cool off a bit. 

1. Put-call
Daily put-call has just on 7/20 reached the lowest since June 2014. Backing up further, we can see that there are really very few days since 2012 that have been below this level: 

A cluster of days in September 2012, probably when QE infinity was being announced, that stood as a major high for about 3 months. 

Late December 2013 to late January 2014, when the market was giddy with 1 year of QE, then as everyone was massively bullish the market had the sharpest drop in about 7-8 months. 

A few days in later June 2014, which was not a major top in SPX or INDU, but was near a major top in the RUT / IWM. NYA made a major top just a few days past this window that stood for more than 6 months. 

If we tallied up the days from the 2011 lows, so that is near 5 years, there are only about 45 trading days that are lower than today in the 3 clusters listed above. Rough math 250 days per year, 5ish years = 1200 trading days, making recent low 3.7% percentile. You can call that an extreme, yes!

But when we change the view to weekly, it is middling. Why? Because put-call has been very high several times this year - Brexit end of June, not sure why in May, correction mid January. 

Two lines on the chart below. One at the 2014 put-call lows, the other at the current level. As you can see there is a lot of room to drop and no particular extreme at current levels. 

2. ISEE index
Daily spike readings
7/18 was a major spike at 156. This was the highest value since 6/8 (which was a trading high) that came in at 136. Interestingly call buyers correct a few days off the big low on 2/16 with a massive 168 which is the high for the year. Before that the major high was 187 on 12/15 and we know what happened shortly after. We can say near term upside limited and downside risks have increased just due to this very high reading. 

Date from 2005 to current
10MA 68% percentile, not extreme
20MA 91% percentile, still quite bearish!
50MA 96% percentile, bearish extreme!

Date from 2014 to current
10MA 32% percentile, higher but not extreme
20MA 70% percentile, better but still
50MA 84% percentile

Very interesting - on a short term level with daily spikes we have definitely seen a significant extreme. But on other measures, not even close. 

3. NAAIM exposure index 

Data from 7/2006
Wow, 7/13 reading of 96 is in the top 10, so that means top 2% percentile of all readings since 7/2006. This is logical at highs, but let's consider the weeks that had higher exposure:

1/30/2013, 104 - no damage, QE steroids pushed SPX another 30 points higher to 2/19 high, followed by brief 1 week dip and prompt resumption of trend
11/27/2013, 101 - just a few weeks higher late December and early January before a -10% drop
12/11/2013, 100 - ditto
3/1/2007, - very right call buyers on the first big drop in months
1/3/2007, - eh, not so right call buyers and market struggled higher for 2 months then had very fast drop
2/25/2015, - near a trading high. markets went higher into May, June and July depending on index but not by very much in most cases
12/26/2013, 98 - see above
1/15/2014, 96 - see above

Most of the readings near limited upside and/or correction as the next larger move

4. AAII individuals - savvy bunch
Last week 7/14 was "more bullish" than this week, so using those figures comparing to data from 2005

Bulls 36% percentile even using slightly higher reading from 7/14, 53% percentile middle of pack!
Bears about 15% percentile, so few bears but not quite in extreme territory
Bull bear spread about 30% percentile

Data from 2014
Bull still low at 35% percentile
Bears also 35% percentile
So not much change compared to 2005


 

 

Total market view

7/9: "Generous market continues rewarding USA stock buyers, and USA bond and gold buyers too. Europe and Japan are the places you don't want to be. USA indexes roughly sideways for 18 months with a great looking Citigroup Economic Surprise index chart, major pivot holds after a big scare and VIX spike, bullish sentiment nowhere near a top. Ingredients are all there for a classic summer stock rally (already in process really) but what I mean is a blast through to decent new SPX and INDU all time highs.

I'd just feel better about the stock move if TLT stopped going up."

Not bad eh? Blast through to new highs it was, and TLT put in biggest drop in a year. 

Sum
Momentum move likely done or will be soon, but that doesn't mean the high is in. Just means market likely to slow down. A digestion week would be completely normal and healthy. If you are longs stocks then you don't want to see big rejection from SPX YR1 along with a big jump in safe havens. Until that happens better to stay long although the more things that check off on the top list the more likely the better decision is to take profits or hedge. Right now there are a few, and perhaps we are due for a minor pullback, but I don't think enough for a big position change.

If you partially hedged any SPY / ES longs with at SPX 2163 on Friday then that is likely a low cost hedge, because valid under the level and improper to hold a hedge with anything above. 

Pivots
USA mains - SPX set at major resistance, other indexes meaning tech set, RUT / IWM and NYA/VTI near Q3R1s. INDU set already above Q3R1s and heading into YR1s. So far pause not rejection. 

Safe havens - TLT and GLD still above all pivots but dropping from RSI extremes and moves that had stretched way out of Bollinger bands. May test support soon.

Global - EEM first weekly close above its YP all year. NKY and DAX still the weaker links; NKY testing 2HP. CL1 (oil continuous contract) also trying to hold its YP, does not look so convincing here.

Other technicals
Watching RSIs on USA daily charts - RSI reaching OB with INDU YR1 tag could be good for a hedge. 

Valuation and fundamentals
Valuation pushing higher side but fundamentals confirming rally. Expect dip buyers.

Sentiment
Some extremes reached on 2 of 4 meters I track means momentum likely done.

Timing (as posted from end June)

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

7/15 might be a trading high / safe haven low, but given all of the above I'd prefer a small reaction ie stock minor pullback and safe haven minor bounce, then more of the main moves (ie stocks higher and safe havens lower) into the next timing window. 

 

TPP's market top checklist

Version 1.

1. Multiple major USA indexes at major resistance, then rejections?

So far SPX set pausing at YR1s, INDU YR1 is bit higher. Tech set, RUT / IWM and NYA are near Q3R1 but so far pause, not rejection.

2. RSI estreme reached? Negative divergence? Bollinger band divergence? (ie "other technicals)

USA quarterly SPX and INDU charts have been mostly overbought since 2013; in fact, you can call this "bull market." NDX chart entirely overbought, and still, during that time. So to sound alarm due to quarterly chart overbought means missing the entire move. What we don't want to see is divergence. INDU some possible to watch because bang on 70 here with divergence, but the bar has just begun and may move around before close. SPX is responding positively to RSI moving back to 70. 

All other timeframes - monthly, weekly, daily - are not yet overbought. Daily charts are not far off. 

Weekly charts have pushed outside Bollinger bands which is bullish, because usually we will see divergence before a major top. SPX monthly band is bit higher and starting to slope up which creates condition for pushing up the band. 

3. High tested with at least 1 lower high?

Nope (not on SPX or INDU).

4. Safe havens showing concern? 

Not really. Biggest drop in bonds in a year!

5. Breadth or volume divergence (adv / dec volume is my favorite)

Nope.

6. Sentiment extremes reached?

Somewhat, yes. 2 of 4 of the meters I track. 
A) Daily put call back down at relative low levels for the past 18 months. Weekly has more to drop.
B) ISE has been toppy intraday but not yet on daily close. Probably one day soon we will see a very high reading and that will be part of an alarm.
C) AAII manager exposure jumped to 96 last week, the highest since February 2015. Keep in mind, if asset manager is sitting on cash with SPX new all time high he or she is probably out of a job. Still, once everyone is in then the momentum move is over.
D) AAII individuals - savvy bunch - staying largely neutral on this move, with 37% bulls reached last week. This is tied for the high of 2016, but still totally middling if you look at larger span of time. Again I'd like to see capitulation here and a significantly higher bull% combined with low bear% for a real market top. 

7. Timing window?

Yes, 7/13-15 listed from end of June. But I no longer have the considerable time it takes to do judgment of direction and importance on these. 

So given these, some pause possible - I expect dips to be bought. Safe havens coming down will be interesting to watch because this could change the theme of the year. 

Safe havens

Sticking to format of TLT, GLD, VIX and XIV but if you really want to trade bonds seriously then we could potentially add TYX, TNX, ZB1, ZN1, ZBU, ZNU, and oh yes, Bunds. Similar for GLD and VIX. 

Funny, several analysts were calling for TNX 1% recently which reminded me of Apple calls for 1000 when it was at 700 in in 2012. We still haven't seen that level. They were thinking Bunds and JBs too are negative so just matter of time before USA 10 year goes down. They didn't consider that yields could go back to positive and then there would be a scramble to dump a guaranteed negatively yielding asset. Now, of course there are correlations but the entire bond drama will be interesting to watch.

For trading purposes the question is whether we just saw a TLT top more like 2008 or 2015, ie down from here, or 2011-12, which dropped a few weeks then immediately jumped back up to test the highs, had a slow drift down, held YP in 2012, then rallied to higher highs. Even then it was a slower drift down until May 2013 which finally pushed down from the 1HP and broke YP for a larger drop. Remember, TLT is still above all pivots so breaking a monthly would be the first step. A strong trend will often need 2 or 3 breaks for something to stick. 

It is rather glamorous to think we shorted the top tick, but let's be real, maybe it was and maybe it wasn't. There is a lot of support for TLT 133-136 and until that area breaks and looks like resistance then it could easily come bouncing back. 

Sum
TLT and GLD remain above all pivots, though just put in a trading high at least and possibly more important high at Q3R1s. They both have room to go lower before reaching support, but bounce likely from there. VIX giving all clear for stocks; XIV far from any level. 

TLT
That is a major league reversal bar with very high RSI. No long term levels tagged here, though we see see near YS2 in TNX and YR2s in both ZB1 and ZN1. The daily chart shows the resistance at Q3R1 near exact, within .02 according to my data feed :). 133-136 includes JulP, Q3P, YR1 which could be support, then 2HP. These are very unlikely to break especially on the first tag. 

GLD
Reversal bar, not on any long term pivot resistance. RSI extreme though. Daily chart shows high near Q3R1 like TLT. If lower then support at the Q3P which is also its JulP for the month. 

VIX
To me that VIX chart is a thing of beauty with clear holds of the YP at the trouble spots. As helpful as that has been, we probably won't see support at the stock tops. Just too low due to 8/24/2015 spike. So this means more emphasis on XIV and maybe VIX futures. Of course, we don't want to see a big move up like 6/7, but as long as VIX is below all pivots the trend gets benefit of doubt. 

XIV
Interestingly, XIV not yet above its YP! I'm not sure how this happens with VIX so low, but there you go. At least the last 2 weeks have been above 2HP. On the daily chart, last week I said would feel better about the rally with XIV above its Q3P and that happened on 7/7. Bit far in either direction to any level now. 

USA main indexes

Prior week: "4 main indexes above long term levels, 1 fractionally above."
Last week: All 5 main USA indexes above long term pivots. Of these, SPX is already testing major resistance; INDU not far away.

Sum
It was a very fast move from the SPX YP to YR1 which was already tagged last week. If the market goes much higher then we'll be running into the same areas for the Dow set. So we are judging "reaction from resistance" and the market can do a number of things. If time permits I will write a separate blog post about this for easier reference. So far it looks more like pause than rejection but we'll assess this day by day and also watch other factors like other technicals, sentiment, etc. 

The market has had a phenomenal move and some rest ie digestion or sideways week would be normal. SPX and INDU have just broken out of an 18 month range in the last 2 weeks and finally safe havens are really dropping. So maybe it we just see a minor pause in stocks then higher. The decision to lighten long exposure via taking profits or hedging will be a judgment day by day. 

SPX / SPY / ES1 / ESU
Of these I think SPX is king. Very fast move from YP near exact up to YR1. This could be a big turn, but more likely is a pause area. It would also be common for the market to re-test the breakout area ie 2134 but if enough people are waiting for that it may not happen. So far SPX has approached resistance from underneath, with only a minor slowdown. SPY YR1 is a bit higher, due to influence of 8/24/15 spike on the pivots. ES1 YR1 was the high near exact, but it too shows minor selling more like pause so far. ESU looks more bullish already above YR1. So, 3 under resistance, only 1 above. This is "pause" but maybe we will see a bit more drop next week. 

NDX / COMPQ / QQQ / NQ1 / NQU
Tech is not leading this year, obviously. Weekly charts struggled to clear YPs but 3rd time the charm. If higher then 2HR1s to watch. Currently pause at Q3R1 on QQQ and both futures charts but not much selling pressure so far. 

INDU / COMP / DIA / YM1 / YMU
Major resistance just above at INDU YR1 18727 then 2HR1 18914. Bullish for COMP to already be above its YR1. DIA and the futures all similar - above Q3R1s with YR1 area bit higher by a few hundred Dow points. If we had to pick just one index for the best signals this year it would be the Dow, so that means markets "should" go higher so we see INDU reach its YR1. Then we'll see what happens from there. 

RUT / IWM / RJ1 / RJU
So finally RUT set joins the others above its YP in the last 2 weeks. IWM looks like pause at Q3R1 but the futures are slightly above, bullish so far. 

NYA / VTI
NYA lifting above all pivots and not yet at major resistance; slight pause at Q3R1. VTI above 3QR1. Doing fine. 

Valuation and fundamentals

I have recently followed Ed Yardeni's lead and started using Thomson Reuters estimates instead of what was being reported in the Wall Street Journal. Earnings estimates must have jumped because the forward P/E only went from 16.52 to 16.58 on SPX last week, implying earnings from 128.44 to 130.38. If we see a round number then 17x is up to 2216. 

The easier chart to follow is the Citigroup Economic Surprise index. I and many others have been watching for this to move positive and move it has. I highly doubt we will see much selling pressure with this moving up. 

Bonds update - and another turn nailed!

If an analyst on Wall Street caught the low of the year in oil after an 18 month crash, the key low in stocks after the worst start to a year in a century, and then somehow managed to recommend a short in bonds literally AT THE HIGHS, not to mention turning bullish on bonds early in January and bullish on gold later January, oh yes, there's more, calling for a key turn in stocks just after 6/9 and then was steadfastly bullish on stocks 6/27+, then that analyst would probably would be in for a 6 figure bonus, maybe 7 even, and/or starting up his own consulting agency a la Tom Lee at FundStrat, or at least getting some CNBC TV spots, don't you think? 

This would especially be the case if that analyst was not trying to buy oil all the way down, only on the low of 2015 and low of 2016; went out of his way to say don't buy yet regarding stocks in January, but started to buy in February, then added on the way up; said buy bonds then ADD, buy gold then ADD in January and February; and said short bonds ONLY ONCE this year year, on 7/6, within .02 of the exact high in TLT!? In other words, that analyst was not a broken clock right twice a day, but have nailed the key turns this year in oil, stocks and so far, bonds too; and been on the right side of all the major trends of the year. And could even go on with other recommendations in EWZ, RSX, EEM, SOXX, even bitcoin!

Well I am that person - and sad to say, no Wall St bonus coming my way within sight thus far, but if you are fund interested in someone with proven capability of making these kinds of calls, - I'm available!  

So yes, here are the quotes:

7/2 on TYX daily chart: "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." 
"Also RSI extreme with some divergence. A reaction move would be normal, but given the momentum think we will ultimately see lower."

7/6: "Interestingly, as "analysts" are starting to sound calls for TNX 1.0 (the % not a computer program version), I am increasingly wondering about a major turn in bonds based on major levels and RSI. TNX came very close to reaching YS2 today and remember the big turns that seem impossible happen on the big levels, just like the USA stock low of the year on RUT YS2 exact. Remember, resistance levels are better used as profit areas on longs instead of shorts - but if you want to take stabs at speculative trades (ie short above all pivots), then multiple RSI extremes and levels are the place to try. Watch reactions on these levels: JulR1 reached today, then Q3R1 just slightly higher 143.64 which would be a good tag area for a setup. If above that then I'll start thinking 2HR1 / YR2 combo 145-148."

7/9: "So we saw 2.10 last week. We are starting to be in an area where a turn is possible..."

And 7/11-15 was the worst week for bonds in a year, and the TLT high according to my data feed was 143.62.

To be completely thorough, we could check pivots and other technicals on ALL of these:

TLT
TYX
TNX
ZB current contract
ZN current contract
ZB continuous contract
ZN continuous contract

On all appropriate timeframes. :)

So if you are still reading, thanks, and I will try to boil it down to the most important charts.

Lows
Very simply, TYX above 2015 low of 2.22 is bullish, and TNX above its 2012 low of 1.39 is bullish. 

Pivots
TNX within a hair of YS2. Note 2015 low of year very near YS1. 

TYX also on quarterly support; previous key lows on YS1, Q2S1, now again Q3S1. 
 

Both ZB and ZN continuous contracts near YR2s! ZB a bit shy, Q3R1 only; ZN YR2 exact!

Other technicals
Put this in a backdrop of a historically stretched Bollinger band and RSI combination as outlined here. For now just posting monthly and weekly charts on TLT.

 

Will this be the high of year in bonds? I don't know, anything is possible. But TLT has dropped back inside quarterly, monthly and weekly Bollinger bands after reaching RSI extremes on the weekly and daily charts.

But it could just be down from here like the 2008 and 2015 highs, or we could see a divergence high like 2011-12 (ie higher in price, lower in indicators). Either way, I expect Bollinger bands to be more resistance from here. Also keep an eye on the Bunds and their yield, especially the 0 line :)

 

INDU Yearly Pivot strikes again!

On June 11 I gave a talk on this method through the TSAA-SF. After going through some pivot basics (what are pivots, how are they calculated, etc) we went straight to the importance of the INDU Yearly Pivot (and half-year, or semi-annual) pivots as well.

We looked at all the key turns of the past 10 years or so on these levels. These have included *the* 2007 top, *the* 2009 low, the 2014 low, 2015 low and now 2 key lows in 2016 too!  

After Brexit there were many opinions but on 6/27-28 the pivots gave the best answer: Buy! I hope people who attended the talk spotted this move.

Remember, daily market comments after close here. These always include SPY, and often other main indexes of note. 

Weekend more involved with blog posts on valuation and fundamentals, USA main indexes, safe havens, and a total market view to sum it all up. 

Recent comments from 6/27 on have been all bullish per the pivot action - summary here. 

Total market view

Last week: "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. ... RUT / IWM still below the YP. So that is the big level to watch next week, along with XIV Q3P."

So correct on stocks rally but not on safe haven fade. XIV Q3P was a key level to watch because if you did then you added more longs on the 7/7 close or worst case 7/8 open. 

Sum
Generous market continues rewarding USA stock buyers, and USA bond and gold buyers too. Europe and Japan are the places you don't want to be. USA indexes roughly sideways for 18 months with a great looking Citigroup Economic Surprise index chart, major pivot holds after a big scare and VIX spike, bullish sentiment nowhere near a top. Ingredients are all there for a classic summer stock rally (already in process really) but what I mean is a blast through to decent new SPX and INDU all time highs.  

I'd just feel better about the stock move if TLT stopped going up. I should drop this idea perhaps with the strong arm central banks making USA 10 year the obvious choice above 136 bps above German and Japanese debt, but still the basic conflict between growth (stocks) and contraction (bonds) is hard to shake as happening simultaneously.

Pivots
USA mains
Very bullish action from the 6/27-28 key turn and then the 7/6 hold. The market should reach major resistance before an important turn, so this means Q3R1s then YR1s. Near term most important level is RUT / IWM YP. 

Safe havens
TLT and GLD also continue melt up although both bang on Q3R1s which could be some trading turn. VIX nailed the stock low but less likely to get the stock high; watching XIV.

Global
ACWI, EEM, PIN under YP; EFA, NKY and DAX still under all pivots. Europe and Japan the trouble area so USA mains better chance of rally if at least they stop going down. CL1 also sitting on YP, more bullish to hold. 

Other technicals
See today's post on bonds. Might be worth watching the upper weekly BBs (Bollinger bands) on USA mains, since falling slope lines more likely to act as resistance.

Valuation and fundamentals
Fundamentals improving very bullish for the market and should help blast through the highs.

Sentiment
Just coming off put-call spike and ISEE lower values, so we should see bullish extremes before a major top.

Timing
Dates for June listed at end of May:

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

6/8 was the stock high and significant turn
6/13-14 was a miss in stocks, and 2 days from trading turn in safe havens TLT and GLD
6/28 was 1 day after major low, stronger than I realized

2 of 3 dates published in advance very near key turns!

Dates for July posted end of June
7/13-15
7/29-8/5 strong

But I'm not sure how these will play out - it takes a lot more time (that I don't have right now) to get direction in advance. More bullish for stocks would be both stock highs and and turn in bonds and gold especially coming up 7/13-15. Or stocks could make a trading high on 7/13-15 as bonds continue melt up. Bias is for the former but we'll see. 

Bonds update

With bonds making all time lows in yield I did a special post on long term charts using TYX last week here. I thought both standard technical indicators and pivots indicated lower. 

Comments referring to TYX and yield: "RSI OS (oversold), but Bollinger band action is quite negative here... A reaction move would be normal, but given the momentum think we will ultimately see lower... "

And pivots: "First target Q3S1 at 2.10, then 2HS1 2.02."

So we saw 2.10 last week. We are starting to be in an area where a turn is possible, but given the momentum I think the most likely move is a bounce in yield (drop in TLT), then a move to longer term targets ie lower in yield higher in TLT. For TLT pivot view see today's safe haven post. Also keep in mind that on TYX we just saw near YS1. 

Let's look at charts again to show how rare the current move has been.

TYX Q
We don't even have Bollinger bands on the quarterly chart until 1984. Due to the relentless downtrend there are a number of quarters that have traded or closed outside the lower band: 1986 Q1 & Q2, 1991 Q4, 1992 Q3 barely, 1993 Q1-4 all year, 1998 Q3-4, 2002 Q3, 2003 Q2, 2005 Q2, 2008 Q4 and 2009 Q1, 2011 Q3, 2011 Q4 barely, and now 2016 Q3.

Sometimes the reaction has been a weak reaction sideways to climb back in the band like 2002-03 and again 2005-06, but some of the other snapback rallies have been pretty strong. Outside the band is trouble so we'll first have to see back above 2.12.

TYX M
(1990s and 2000s separated into 2 charts.)

Outside the lower band and RSI OS (oversold) is very rare combination. 

1986-Feb
1986-Mar
1986-Apr, major low

1993-Feb
1993-Aug
1993-Sep
1993-Oct, major low

1998-Sep
1998-Oct, major low

2001-Oct (RSI close enough), near key low

2002-03 RSIs close but not quite OS, ditto 2005

2008-Nov
2008-Dec, major low

2011-Sep

2015-Jan, major low

2016-Jul, ? ? ?

So we're talking about 15 months or so since 1981 that have been outside the monthly BB with RSI oversold and one of them is now. A third of these have been near major lows in yield - not the low obviously, since that was just recently, but most of these cases a turn that held for several months or years. It doesn't have to be this month, but could happen soon, this bar or the next few. 
 

TYX W
I am not going to repeat the same exercise (ie counting bars outside the BB and OS) but point is the same. It is well under the band here currently 2.24 but will be lower as next week opens. In 2011 there were 7-8 weeks outside the band and OS before a stabilization move; and in 2015 there were 4 bars outside with OS before a strong snap-back rally. Here we are on 4-5 (6/20 week inside the band in the middle of 4 surrounding bars outside).

TYX D
Only minor daily BB divergence - no RSI divergence. Weekly chart neither showing divergence. Usually (but not always) we will see divergence before a better turn up.

Safe havens

TLT
Wow, melt-up in process. Looks like going for 2HR1 - YR2 145-148. Long term buy and hold the first two weeks of 2016 have done very well, and even if shaken out of some portion after the February top and drop, every reason to be bullish from mid March on with clear holds of 1HR1 as support. That said RSI in historical extreme area and some reaction down more likely. 

Daily chart already at Q3R1, with RSI fully OB (overbought) every day this quarter so far. Pushing higher despite the move in stocks on Friday is quite remarkable. From here a move to 145-148 looks very doable, but I'd kinda rather see a shakeout with a reaction down from this Q3R1 first. 

20160709 30 TLT W.png

GLD
Also looks quite healthy and likely to see 2HR1 / YR2 before the year is out. Near term bang on Q3R1 and RSIs OB.

VIX
VIX made a rare disappointing wrong move on 6/23 when it suggested to buy in front of the vote. But it has more than made up for it on 6/27-28 when it showed no panic on 6/27 despite indexes being sharply lower, and gave all clear for significant longs on 6/28. The only problem here is that we are less likely to see major support for a stock top because the level is so low - Q3S1 is is 9.84, so I'll give extra attention to XIV.

XIV
Above its 2HP, Q3P and JulP, but well under the YP. Plenty of room to move up and more bullish above Q3P 26.43

USA main indexes

Prior week: "This week: 2 main indexes tested and held long term levels, 2 recoveries, 1 testing."
This week: "4 main indexes above long term levels, 1 fractionally above."

This is the most bullish we've seen the markets all year. It will be even more so if RUT / IWM can continue to follow through and lift above their YPs with "the look of support." Less bullish will be a fade back under these levels. Near term I'd also watch ES 2132-46 for some resistance, and YM 17990-18000 area for support. 

SPX / SPY / ES
SPX looks to have a clear path to YR1. SPY should reach Q3R1 at least near 2015, and then chance of higher. ES is the pesky one here, with YR1 immediately above at 2132 and Q3R1 at 2146. This is due to the lookback  period of the futures. I really wish it weren't the case, as I would prefer to ignore the longer term pivots on futures, but the fact is computer programs do not ignore these so we must factor them into account. Priority to the bullish view of the cash index and ETF, but it still may pay to watch ES 2132-46 for a near term reaction. 

NDX / COMPQ / QQQ / NQ
Tech set looking strong clearly lifting above all pivots - very bullish for the market for tech to get in gear. Lots of room to rally with nearest resistance 112 on QQQ. 
 

INDU / COMP / DIA / YM
Cash indexes looking great, DIA room to rally further, and YM above its YR1 is bullish to stay above 18000.

RUT / IWM / TF
RUT and IWM fractionally above the YP which is bullish, but not quite the "look of support." Simply stated more bullish to hold above the level and less so if back below. 

NYA / VTI
These really helped confirm the strength of the market especially on 7/6 with very clear lifts from pivots - 7/6 low bang on NYA YP and lift above its Q3P / JulP as well.