Big picture thoughts

A vision of how markets unfold from here....

As previously written up in several Elliott wave posts (search for E-wave subject in the FAQ search bar, then click on Elliott wave tag at the bottom of posts, apologies for discrepancy), I think we are now in a 5th wave up on the monthly chart in the bull market that began in 2009. 5th waves are typically exuberant affairs, al la 1998-2000 and 2006-07, then gold in 2010-11. 

But here's the catch - we won't see the same euphoria for stocks as we did in the previous bull market highs of 2000 and 2007. Because it is utterly obvious that the real euphoria is in bonds, and principal driver of the 2010s rally has been the central banks. BoJ aside, they have been buying bonds, not stocks. Stocks have benefited to be sure, but is rates and bonds that have had the most dramatic move.

I'm not a libertarian, but I've lived long enough in a rent controlled city to know that nearly all government policies, no matter how well meaning, have unintended consequences. (I have a few thoughts on what those have been, but let's save those for another time.) Actually, any study of history will confirm this. And as the saying does, "Those who do not learn from history are doomed to repeat it." It is rather ironic that merely two decades after "the fall of communism" which we can mark at the collapse of the Berlin Wall in 1989 and subsequent rapid disintegration of the USSR, was so quickly followed by the heart attack for capitalism that was 2008. 

Somehow we were brought back from the brink, and central bankers played a large role in saving the system. Bernanke, Draghi, then Kuroda, Yellen, and others - the high priests in the temples of capitalism - were defending the banks to the death, and desperately want that kind of crisis to never, ever, happen again. No matter what the cost. No matter what the cost to savers, to income inequality, to pension funds obligated to buy bonds, whatever. No stock market crashes goddammit! And now, less than 25 years after the fall of communism, central bankers, portfolio managers and investors think that various committees can move markets - indefinitely! We are beyond irony to the preposterous. Do we really think that governments can control markets forever according to their 5 year plans? Wasn't that supposed to be over in Berlin 1989? And wasn't the crisis over, say, March 2010 with stocks a year off the lows?  

Armed with with hundreds of billions of dollars, yen and euros, actually well into the trillions at this point, all being utilized to push down interest rates, policies have been effective for a long time. They could be effective for longer still. But eventually, no matter who much the capitalist banker Politburo presses down, at some point, the market will escape the clutches and act on its own accord. The return of the repressed may not begin violently, and maybe even welcomed for a while. This would be like peristroika and glasnost in Moscow in the 1980s. Eventually, interest rates will erupt; and the wall will crumble from the weight of too many years of being forced to hold itself up. 

So the translation of my historical and vaguely psychological references is this: maybe interest rates start to rise, and this is initially welcomed. Financials would rally, and money would come out of bonds into stocks. This will be enough to lift SPX into my ideal target zone of 2250-2500 from 2017 Q2 to 2018 Q2. 

But when interest really starts to move, stocks for sure will be unsettled, and then drop violently. Why? Because corporate CFOs and asset managers around the world, the real controllers of global purse-strings, have planned their debt, stock buybacks, hirings etc, and allocations, on this crazy world of 0-2.5% interest! Or perhaps if they are living in Europe or Japan, they are doing their spreadsheets based on numbers less than zero!! It is also clear that the most feared event for markets is not weak GDP, low earnings or valuation - it is higher interest rates.  

So far my top call on TLT is still holding. I'm not totally certain that it does, but with TLT below the AugP then hold your shorts if you took that trade. Regardless, if TLT can rally again, then I think this will be a *very* key high. It might be higher, perhaps a double top, maybe lower; but after this, I will be quite bearish TLT and bullish rates. I am basing this opinion on the Bollinger band and RSI action on TLT across timeframes, some timing work, and the aforementioned perspective on government intervention in markets. 

So, if all correct, rate increases might not initially tank stock indexes. It will depend on the speed of the move. But eventually, bond market volatility will unsettle stocks enough for a serious drop. Until then, we are in the calm before the storm. This calm could last another 6 to 18 months according to my ideal high model (I will revisit this shortly.) And then, forces of nature, the invisible hand, ha - and not committees of central planning government bureaucrats - will have their say. 

Central bankers have manipulated markets nearly to the extent of the communists in the 20th century. Why anyone thinks they can pull this off successfully, historically speaking so soon after Berlin bricks hit the road so to speak, is beyond me. Surely all the bankers had courses in math, but didn't those economics PhDs running the central banks have any courses in history? 

By writing this post I am publicly joining several billionaires and many others who have sounded the alarm of all this central bank intervention. Privately I have been expecting a decrease in confidence in the omnipotence in the centrals for about a year, and this has indeed occurred in terms of the FOMC / DXY stall, BoJ / NKY and ECB / DAX. Basically, I think the billionaires like Soros, Druckenmiller and more recently a Rothschild, and many others, collectively speaking, learned in history class, and the bankers did not.  

Total market view

Last week: "Stocks set up for higher. It would be nice to see the ideal target zones mentioned just below, although whether or not this is this week or later I do not know. Simply stated bullish until we see INDU YR1 as I really think we will see that trade."

Result was higher highs in all 5 USA main indexes last week, although INDU hasn't tagged its YR1 yet.

Sum
USA mains are acting in a very healthy fashion at the highs and we should see major pivot resistance for a top of any significance. Most sentiment extremes reached in mid July have backed off. Safe havens TLT and GLD are a bit weaker, and we aren't seeing any concern from VIX/XIV. Simply stated stocks should rally further and I'd especially like to see INDU YR1 area (also check other index targets below) for a key high. 

Pivots
USA mains - All 5 USA main indexes are not yet at pivot resistance and/or have cleared levels which have turned into support. As long as those levels hold, we should see higher for a top of major significance. Ideal top zone mentioned last week and still in play is: SPX Q3R2 / 2HR1 combo, INDU YR1, NDX anything above 4816, RUT Q3R2 / 2HR1 / YR1 cluster. 

Safe havens - TLT and GLD below AugPs, but not much damage. VIX not sending any warning for stocks yet, though XIV AugR1 level to watch

Global & other - Oil the weak link back above 2HP last week, and again testing YP as of Friday. This would be a fast move from below all pivots (slightly) as of 8/10 and possibly reclaiming all with one more up day. China and Emerging markets moving well. DAX testing YP from below, interesting level to watch.

Other technicals
NDX is just ignoring daily overbought readings which to me says it will get the headline of new all time highs. Yet just as interesting TLT just has not dropped that much and double bottom and hold of daily 50MA (moving average) means this could easily go back and test highs or higher. In this "everything up" market, USA main indexes, bonds and gold are all pushing upper Bollinger bands on some timeframe or another (quarterly, monthly, weekly, daily). 

Sentiment
Put-call made a significant low near 7/20, but then rose. NAAIM managers reached an extreme on 7/13 and since then only Tech has substantially advanced with SPY, DIA, IWM and NYA all mostly flat). ISEE has had some individual readings on the higher and and is worth watching. Ideally we will see another round of sentiment extremes (not just the NAAIM managers) that coincides with USA main indexes reaching pivot resistance. 

Valuation and fundamentals
Thomson reporting 17.00 forward earnings but in the last few weeks SPX has continued up while P/E has dropped from 17.20; for now a bullish trend. Also, while Citigroup Economic Surprise Index has faded some, it is above the zero line. 

Timing
I listed 7/29-8/6 as an important period since the end of June. This turned into a key pullback low for stocks, a double top in gold and less important lower high in TLT. August timing was a bit mixed as I tried to separate out stocks from safe havens. 

I thought the 7/29-8/6 window was a strong one, and as it turned into a pesky stock 7/29-8/1 high quickly followed by 8/2 key pullback low. Maybe the importance of this 8/2 area will be in the safe havens key lower high in TLT and double top in GLD. We'll see. 

Remaining dates for August:
8/9-10 stocks - at this point, hard to say; pullback low or 8/11 high +1
8/12-13 bonds & gold - 8/13 was Saturday so this is really 8/12; 8/11 pullback low?
8/21-22 stocks
8/23-24 bonds & gold
8/29-9/1 all mkts

Safe havens

Sum
TLT and GLD remain below monthly pivots and this hasn't been the case for much of the year. VIX healthy, yet XIV AugR1 level to watch for the week. 

My view is that TLT and GLD both below AugP leaves stock indexes in the stronger position, while TLT and GLD back above AugPs, should that happen, is a likely prelude to stock shakeout, pullback, or trading top. 

TLT
Weekly chart between levels. 
Daily chart held AugS1 twice, along with the D50MA (purple line). In fact, TLT has been so strong this year this is the only tag of a monthly S1 all year. Friday rallied but still just below the AugP. Above that would likely be very bullish for TLT. 

GLD
Weekly chart also between long term levels. Daily chart shows the double top on Q3R1 near eaxct. One day last week closed just above the AugP, but it didn't maintain and broke again the next day. Looks like we could see a move to AugS1 to match TLT. 

VIX
VIX below all pivots and not close to support. No warning signs for stock rally yet. 

XIV
Weekly chart looks good.
Daily exceeded AugR1 but only by 1 day, and then resistance for 3 days. Stocks in stronger position with that above. 

USA main indexes

Prior week: "SPX above long term resistance is bullish; INDU held medium term support and going for long term resistance at YR1, tech held 2HR1 as support and going higher, RUT/IWM above Q3R1 and going for higher, NYA still stuck just on Q3R1."
Last week: SPX set above resistance and going higher, NDX going for 4816+, INDU ideal top near YR1, RTY also healthy and not at resistance. NYA fine, VTI YR1 level to watch.

Sum
In sum USA indexes look pretty great here and with the entire SPX set above YR1s and with 4/5 of the Tech set above Q3R2, and other indexes not yet at major resistance, the bulls have the ball. Ideal top would be INDU YR1 with others also tagging major resistance levels (Q3R, 2HR, YR).

SPX / SPY / ES1 / ESU
All these are above YR1s which have tested and held as support for SPX and ES1, and heading higher. Not yet at resistance. Bullish. 

NDX / COMPQ / QQQ / NQ1 / NQU
Phenomenal rally continues with no selling despite daily chart overbought. I really think we need to see the headline on NDX which means above 4816. QQQ and NQU already above Q2R2, NQ1 trying as I type.

INDU / COMP / DIA / YM1 / YMU
I'd really like to see INDU make it up to the YR1 area for a picture perfect top off the rally from the YP.

RUT / IWM / RJ1 / RJU
Above all pivots, both futures lifting from Q3R1 as support, and should reach pivot resistance before a major top. 

NYA / VTI
NYA stalling but not at resistance; NYA daily showing above Q3R1. VTI looks a bit mroe vulernerable, starting to creep up to YR1. No rejection yet however. 

Valuation and fundamentals

Thomson Reuters reporting SPX forward P/E of 16.99 which is positive, since that is lower than last week while SPX was up slightly. This means earnings estimtes increased. For the near term, this makes 17x 2185 an interesting level to watch in addition to pivots. 

This is somewhat countered by a declining Citigroup Economic Surprise Index, but I think as long as that stays above the zero line bulls have benefit of the doubt. 

Bonds update

As yields were making historic lows I wrote a few special posts on bonds - check the tag. 

7/2 thought yields should go lower / TLT higher, though stretched

7/6 recommended speculative short on TLT at a level that came within .02 of the high 2 days later

7/9 thought window for turn more likely, targets reached

Next week was the biggest drop in a year; only to come roaring back. Now what?

Sum
As of early July, I thought move had more to go. A week later thought we could have a turn, and that was right. Now the bounce in yields / drop in TLT has been disappointing, and now it seems more likely that TLT tests highs or higher. This will be especially the case if TLT reclaims all pivots above AugP 140.72. 

To put the move in context let's again looking at long term charts of TYX.

TYX Q
The red line is the 2015 low and I had to make it thinner so you could see the current bar. Now we are only about halfway through Q3 but really this bounce has been very weak thu sfar. Look at others that get going from the lower band. Comparatively, this is just not going anywhere. If TYX drops under the 2015 low again of 2.22, watch out below. 

TYX M
Monthly chart with same idea. Despite RSI near extreme, very weak at the current level. 

TYX W
Stayed under a sharply falling 10MA (aqua line). RSI only reached 40 on the bounce. Even a bounce failing near 50 is more common and still a downtrend. Quite weak! Maybe we will see the lower band again.

TYX D
Daily chart clear drop from the 50MA, and already back under all MAs (10, 20, 50, etc). Not hard to imagine a visit to lower band at least. 

And a TLT chart with pivots and MAs. If above the AugP I would expect a move to Q3R1 again and maybe up to long term resistance levels above that near 146-148.

Looking for shorts

Never short a dull market is the phrase but sometimes markets stalling with RSIs extended means a drop is next. I scanned all the things I track looking for setups. Using the basic criteria of below at least 1 long term level, ie below YP or 2HP, what is a candidate for further consideration?

Only two:

Oil, although I like the CL1 continuous contract chart and it is currently sitting right on its 2HP support at 42.01.

Shanghai Comp via TradingView symbol XGY0 "Shanghai Class A Index." For some reason the number is slightly different than the Comp as reported on CNBC but chart structure and % moves are often identical, so good enough. That is been in a tight range most of the year and currenctly approaching its 2HP from below. What is more likely? That stocks top out here and SHComp has a decent drop down? Or it catches up to rejoin every other international index I know of that is above both long term pivot levels? 

That would leave speculative candidates - we'd want to see RSI extremes with divergence, a downsloping moving average on a longer timeframe maybe or more likely a weekly Bollinger band, and/or small blue bars, and of course, pivot resistance. Not many look good here, but RSX and PIN/India stand out as considerations. But both appear to be opening above pivot resistance levels which immediately nixes the idea. 

But GLD is back above all pivots after a quick drop, and TLT may do the same today. Just so much easier buy what is going up. 

Decisions, decisions

The idea of trading or active management is to make decisions that will benefit the account compared to a passive approach. This can be difficult, but is far easier in smaller amounts (ie transactions that don't move the market). And as I have demonstrated on this site for 10 months, very possible with the right tools!

Some decisions are crystal clear, like buying stocks on 6/28 and adding 7/5-6. But that doesn't mean every decision is easy, even using this method. Let's take a look at two recent recommendations and decisions to make today. 

TLT daily chart below with pivots and moving averages. 5/31 and 6/1 was a long opportunity, crystal clear. But after the run up, TLT appeared to have a rejection from 2 long term resistance levels coupled with RSI extremes on multiple timeframes. A decision to take profits 6/16-21 was warranted, but wrong, as TLT jumped back up on 6/24 then exploded higher.

6/24 and especially 6/27 were tough buy areas, because not near any pivot, and RSI stretched. So I passed on that long and instead focus on stocks, which provided ample opportunities to buy above pivots. I recommended a short near the high (see recent featured posts) and took that. We have already sat through one bounce, now another. All we have seen on a drop is a move to a monthly S1. The decision here is to hold the short below the AugP, or take profits. I think if you took the short, still better to hold. But if you didn't take the short, yesterday's repeated hold of AugS1, combined with the rising daily 50 moving average (purple line), is not a terrible long setup in one of the strongest trend in the markets.

Now on to EEM. I strongly recommended this as a buy on 8/3 and made a special point to highlight this in the daily SPY comment. Do you see why? Clear hold of the YP, with the AugP also not far below; tremendous hold of a rising D20, and clear of a D10 and D400 as well. 3 moving averages on your side, the yearly and monthly pivot all on the same day. What more do you want?

As it turned out EEM was one of the best things to own since then, and made a very fast rise to major resistance cluster. Now we have a decision: take profits or hold? Key points: 3 resistance levels: AugR1, 2HR1, Q3R2 not far above. Daily RSI is officially overbought. And not shown: EEM has been entirely outside its daily Bollinger band for 2 days in a row. This is quite rare; the last occurrence was 4/8-9/2015. Although EEM did go higher by a few $ and a couple weeks, this was 2 week away from a major top. Before that the nearest example was 6/10/2014, which had 1 day mostly outside the BB and RSI near OB. This was a trading high that held for 3 weeks. One more example: 1/2-3/2013, both days nearly all outside the BB and RSI fully OB; that was the high for the year. 

I don't know what is right here. If we take profits, then it could have a minor pullback and jump above the resistance levels. If we hold, maybe this a major top. I made a decision today to trim the position and take some gains, but hold a decent chunk. We'll see what happens. 

Total market view

Last week: "Hm. Mixed signals here with stocks maintaining strength while safe havens soar. I'd still rather see stocks move a bit higher, but think we might see selling into that strength. Keep in mind that moves outside weekly Bollinger bands even for USA stock indexes are rare. SPY has been outside its weekly band for 3 weeks but slowing; DIA has already dropped back inside. Ideal move is stock trading high in this 7/29-8/5 window with accompanying sentiment extremes reached 2 weeks ago, then some mild pullback as safe havens test highs or higher, then we'll see. With even perma-bull Tom Lee worried about August perhaps not much damage. NDX in particular looks fantastic and ready to test all time highs."

Some right some not with general take on market correct but timing idea off. Stocks started the week higher only to see selling, quickly followed by a shakeout and 8/2 stock pullback low. Comments during the week to hold stocks above the VIX AugP and XIV YP (made on 8/1), and to watch SPY Q3R1 / AugP support, QQQ 2HR1 support, DIA AugP, and NYA AugP (made on 8/2) which all held near exact, were bang on. 

Sum
Stocks set up for higher. It would be nice to see the ideal target zones mentioned just below, although whether or not this is this week or later I do not know. Simply stated bullish until we see INDU YR1 as I really think we will see that trade. 

Pivots
USA mains - look very healthy here and poised for higher. Ideal target zones SPX Q3R2 / 2HR1 combo, INDU YR1, NDX anything above 4816, RUT Q3R2 / 2HR1 / YR1 cluster. 

Safe havens - TLT and GLD below monthly pivots acting as resistance look like they should drop further to test support, say Q3P on TLT and GLD at least AugS1 and maybe its Q3P too.

Global & other - EEM and India via PIN both moving well. EEM holding its YP has support since clearing it for the first time this year on on 7/14; then recently tested and held its YP in convincing fashion on 8/3. Oil has bounced a bit to relieve daily RSI oversold condition, but CL1 still under its 1HP so it would look much better to get and stay above that. For now, still below all pivots. 

Other technicals
I did a long term chart comparison of TYX and NDX here. If NDX blasts through its highs and holds above, then I think that will add to boost in TYX. If we see a fade after a weak tag of 2816, then bond yields maybe still stuck. 

Otherwise, we will likely see USA main index daily charts reach RSI overbought soon.

Valuation & fundamentals
Constructive - remember in late stages of bull markets valuation gets frothy and usual rules will not apply. 1998-2000 it was dot.coms and sure plenty of people called it insanity but the best strategy was to play the rally as long as you could then get OUT. Now in 2016 we are seeing global central banker / income inequality insanity and my take on the best strategy is the same. This currently applies to both bonds AND stocks.

Sentiment
Lots of sentiment froth has been reached in the last few weeks, although the stall from 7/14 or so (outside tech) to 8/2 low was enough to fizzle some measures. Daily Put-call is back on the higher side as we head into options expiration. But the next time we see extremes across the board, especially if we are near the ideal USA main index target zones mentioned above, would help turn that into a top.

Timing
I thought the 7/29-8/6 window was a strong one, and as it turned into a pesky stock 7/29-8/1 high quickly followed by 8/2 key pullback low. Maybe the importance of this 8/2 area will be in the safe havens key lower high in TLT and double top in GLD. We'll see. 

Remaining dates for August:
8/9-10 stocks
8/12-13 bonds & gold
8/21-22 stocks
8/23-24 bonds & gold
8/29-9/1 all mkts

Long term charts - TYX & NDX

All time lows in bond yields were reached on 7/6. After a near low test 7/29, yields are again moving up and seem like they "should" go higher to test pivot and MA resistance.

The all time high in NDX was in 2000. While the price came close to testing in 2015, the quarterly / monthly and weekly close highs acted as resistance in 2015. Recently they have turned into support. NDX seems very likely to be making headlines in the very near future. 

The big question here is: NDX new all time high and fade from there as bond yields continue trend? Or NDX blast off and maintain, as bond yields continue down? We'll see. 

TYX Q
Red line is the previous all time low, and consider the quarterly close low of 2.30. Whether or not this is the final low, a lot more upside possible here. 

TYX M
Small red bar with RSI divergence and false breakdown with price back above 2015 low. Stage set for higher. 

TYX W
Still under a sharply down sloping 10MA (aqua) then the 20MA (orange) has been resistance the entire year since the 2nd week of January. 

NDX Q
2 red lines on this chart are the quarterly close high and the all time price high. You can see the stall near the quarterly close high in 2015 Q1 & Q2, then a drop; after that the quarterly close has been support. Small red bar 2016 Q2 and since then launch. We are only about halfway through Q3, but c'mon, this looks set to blast through the all time high.

NDX M
Same red lines as the quarterly close and monthly close were the same. Now maybe we will see selling at the highs, but I cannot imagine not seeing the new all time high headline, which could be as early as Monday. Though RSI overbought on the quarterly chart (and has been since 2013 Q3 btw) RSI on the monthly is only 63 - plenty of room for higher!

NDX W
On this chart I have replaced the monthly close high with the weekly close high, and you can see this was the exact top in July 2015, then again was resistance in later 2015 with 2 bars just slightly exceeding the level and quick drops back under. This move has been an entirely different story - all blue from the 6/27 low, outside the weekly Bollinger band for 3 weeks, and the weekly close level holding as support. Now I don't know how much higher we will see immediately, and given daily RSIs maybe we will get the headline and then drop, but at this point new all time high in NDX seems like done deal. 

Safe havens

Sum
All safe havens are giving green light for stock indexes. For 2016 this has been quite rare with strength in TLT and GLD much of the year. TLT and GLD are below AugPs and seems like we should see a move lower to support as stock indexes go for higher levels. 

VIX / XIV continue to be great confirming indicators as VIX AugP and XIV YP held both near exact on the 8/2 stock index pullback low. While we may not see VIX long term support, watch reactions from the last 2 yearly lows at 10.88 then 10.28, though the prettiest low would be a tag of Q3S1 at 9.84.

TLT
Weekly chart looked great last week but now looks more likely to test YR1 / 2HP. Dropping under 2015 high area for the 2nd time should add to down pressure. 
Daily chart showing resistance at AugP. If you shorted 7/8 near the high then it has been an easy hold below the AugP this month. If you didn't short then the first time below the AugP on 8/1 was good risk-reward or at least a reason to lighten up on longs. 

GLD
Weekly chart in middle on nowhere. Maybe we will see YR2 / 2HR1 for a larger top. Daily chart looks bit more vulnerable to some drop, with 2x top on Q3R1 exact and GLD also clearly pushed down from AugP. AugS1 then Q3P doable. GLD has not tagged a quarterly pivot since early in the year, though GC contracts came very close on the 5/31 low.

VIX
Given that is very unlikely to see 2HS1 down near 8, 2015 low of 10.88 and 2014 low of 10.28 levels to watch.
VIX AugP gave the perfect confirmation to hold longs along with especially Dow set AugPs. A tag of Q3S1 would make a very pretty low. 

XIV
For now bullish to be above 2HR1. YR1 looks like a stretch. Near term AugR1 doable, but Q3R1 looks a bit far for an immediate target considering RSI. Note, XIV hold of YP coinciding with VIX hold of AugP along with Dow monthly pivots and others (Tech set 2HR1) gave perfect hold area. 

USA main indexes

Prior week: SPX half & half, INDU holding Q3R1s as support, Tech set strong above 2HR1s, RUT above Q3R1 and NYA bit below Q3R1s. 
This week: SPX above long term resistance is bullish; INDU held medium term support and going for long term resistance at YR1, tech held 2HR1 as support and going higher, RUT/IWM above Q3R1 and going for higher, NYA still stuck just on Q3R1. 

I do try to boil this down but if you are not familiar with my abbreviations it is gobblegook. Simply stated support held last week in classic fashion and markets are going higher. As far as recent gains maintain then we are setting up an ideal top zone at:
INDU YR1, SPX Q3R2 / 2HR1 area, NDX 4816+ (not a pivot), RUT / IWM YR1 / 2HR1 / Q3R2 cluster. If we see those levels, given current sentiment and valuation measures, the market would likely be due for an extended range or deeper pullback. 

SPX / SPY / ES1 / ESU
All charts clearly bullish, with both long and medium term levels holding as support and the levels that had capped the market from 7/20 to 8/1 finally giving way. If YR1 can hold as support then clear target zone on all charts is 2HR1 / Q3R2 zone which is 2209 SPX & 220 SPY. 

NDX / COMPQ / QQQ / NQ1 / NQU
What a move in the tech set, with massive launch from the 2HP / YP combo 6/27 week & 7/4 week. 3rd time was indeed the charm here. Looks like going for YR1 / 2HR2 up near 5000 area. Remember ATH in 2000 = 4816 and so clearly going for it! One of the key reasons I was bullish was that the Tech set had cleared the 2HR1s. These levels continued to hold as support and was exact low on 8/2 for NDX, QQQ, and NQU. They already zoomed to Q3R2 but I think we pretty much have to see new all time highs on NDX so that means higher. 

INDU / COMP / DIA / YM1 / YMU
INDU looks like going for YR1 area which would be such a nice high area considering the rally began when YP held near exact on 6/27. 8/2 pullback low exact on INDU, DIA, YM1 and YMU showing the Dow set continuing to give fantastic signals for the market as a whole. Remember 7/20 high was INDU JulR1 exact, although the others didn't tag levels. 

RUT / IWM / RJ1 / RJU
RUT going for 2HR1 and maybe YR1 area. What a move from the YS2 low. 

NYA / VTI
NYA a bit stuck, and the only index not to clear resistance at Q3R1 on Friday. VTI healthier but fast approaching YR1 area. If above that then 2HR1 / Q3R2 would likely coincide with RUT / IWM YR1 / 2HR1 / Q3R2 all clustered. 

Valuation and fundamentals

Thomson Reuters SPX 12 month forward p/e: 17.15, down from 17.20 last week as SPX is higher. 17x area possible support currently 2163, if we see 17.5x then current target 2227.

Take a close look at that chart. So valuation reached a high late 2014 it appears, maybe early 2015. Before that the only years higher were 1997-2002, and obviously 2000-02 with valuations coming down was not a time to be holding stock longs. 

This fits exactly with my idea of E-wave W5 euphoria stage on the monthly chart. The market will frustrate the "disciplined" investors, the theorists, Wall St "experts" who pretend to know where SPX is going and repeat their targeting exercise year after year with authority yet so infrequently get it correct. 

I think we can see 18x-20x forward earnings in this latter stage, but not has high as the late 1990s when new technology was so completely changing everything. 

That is a very wide range but currently - and this could increase over time if earnings estimates improve - 18x to 20x is 2291-2545. As it turns out this lines up with my E-wave ideal target zone of 2250-2500 achieved 2017 Q2 to 2018 Q2. 

*

Citigroup Economic Surprise Index took a dip on GDP (which is entirely backward looking btw!) but still holding the big jump above the zero line. Interestingly, in very recent weeks Yardeni has added a comparison of this indicator to 10 week change in bps on TNX, and right now is one of the widest discrepancies from 2003. If you look at the detailed charts of 2003-2009, then 2010-current, you will see bond yields lead on the way down and the surprise index leads on the way up. Of course no one knows what the markets will do but right now this is pointing to a rise in yields, or to put in another way, the TLT top is in. 

 

TPP vs Gundlach, Lee & GS!

Wow - in the last week or so, the smartest guy in the room and mostly bond guy stock bear Gundlach; Wall Street's biggest perma-bull Tom Lee; and the masters of the house Goldman Sachs have all agreed. Next move for stock is down!

Gundlach says sell everything; Tom Lee says 'August scares us' and points to a tactical move to sell end of July and buy back in SPX 2100; Goldman says underweight equities for 3 months. And just in, adding after the fact, Goldman's chief equities strategist now sounding alarm for -10% drop

Now I don't trust Goldman one bit, but this line up of top strategists is quite rare.

Even I (like most market participants I suppose) have been wondering about a top, hence my 3 recent market top checklists. So far, though some elements of a top exist, none have delivered a clear Yes, a top, and so take profits or hedge. 

SPX has reached YR1 area, and INDU nearly so - top possible. But no rejections yet, none at all! VIX / XIV both clear right now - not to worry!
Sentiment has reached extremes, and so far the market has handled this with a Dow pullback and Tech melt up.
Daily chart RSI has reached overbought (OB) near enough on Dow at the highs enough for a mild drop to follow; and on NDX, so far ignored; quarterly chart Dow some concern. Other than these, RSIs plenty of room to go up on weekly and monthly charts. 

Valuation doesn't seem to matter (it will, at some point - but that could be 2017).
Fundamentals were jumping in July until the GDP report; but here's the thing, that was for Q2, which is rear view mirror.  
Timing window here, even I thought this area strong enough for major turn. This does bug me a bit, because I too thought it would be stock high & safe haven low. 

And yet - SPX and Dow have just broken out of an 18 month range. NDX is approaching its 2000 high with confidence. After the 7/1 to 7/6 drop, SPX pullbacks have been about 15 points, and ES with overnight action has been 20-25 points. These are all massively bullish points.

Lastly, we are just recently seeing some weakness in TLT (ie below a monthly pivot) after a huge rally and then close lower high for the months of June and July. 

Maybe, just maybe, stocks will continue sideways or up. We could have a pullback in the weaker indexes so that would mean Japan, China, Europe, as USA stays strong. Of course oil is now an issue below all pivots as well. But with Tech looking about to blast off and bonds finally a bit weaker, maybe the market will leave everyone waiting to buy a dip in the dust. 

Long and strong with VIX below all pivots and XIV above its YP I say. If we see VIX jump above its AugP with the look of support, take a hedging trade. This will protect from longs as early as 6/27-28 then a the huge buy area of 7/6 when just about everything in USA was screaming buy as TLT and GLD were making a top. If you didn't get in there, and waited for the SPX 2134 breakout, then you aren't really following these methods. 

I realize the big guys have to make decisions in advance of technicals, or at least don't have the flexibility that individual traders and small hedge funds do who would benefit most from my type of work. But c'mon, SPX finally clears 2134 and NDX going for new all time highs and you are going to sell out already? Please. 

 

E-wave

Monthly SPX chart in euphoria wave 5 from 2009 lows. See tag for more detail. Back in March I used this idea to create ideal high 2250-2500 from June 2017 to April 2018. For simplicity's sake just drawing green up portions ie W1, W3 and W5. 

Within that monthly W5, we should see weekly chart unfold in 5 waves with some topping pattern at the end. Roughly, something like this. Again, I am not drawing the down W2 or W4 portions.

I used this technique to write: "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" on 6/30. So far it seems to be playing out. Check the tag for the post. 

Considering this is W3 on a weekly, it should sub-divide and those subdivisions will show on the daily. For the most part, we should err on letting longs run. A total complete ideal pattern played out from the 2/11 low to 6/8 high, then to 6/27 low. Then a new pattern began. Again, see prior posts for details. All this is an intro to what we should see next. 

The more bearish view is that we have already seen W1 and W3, then a sideways W4, W5 is next to complete. Then we would see ABC down for the first real pullback since the 6/27 low, which would be the next best buying chance since then. 

Or, a perma-bull might think we are just in a sub-division of a W3, and that could be just half-way through. Perhaps. If safe havens continue strong I might think the former. 

Total market view

Last week: "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."

INDU didn't tag its YR1 yet. QQQ reached RSI overbought but not the others. Sentiment reached extreme on 3 of the 4 I track but that last one is still stubbornly holding out. 

Sum
Hm. Mixed signals here with stocks maintaining strength while safe havens soar. I'd still rather see stocks move a bit higher, but think we might see selling into that strength. Keep in mind that moves outside weekly Bollinger bands even for USA stock indexes are rare. SPY has been outside its weekly band for 3 weeks but slowing; DIA has already dropped back inside. Ideal move is stock trading high in this 7/29-8/5 window with accompanying sentiment extremes reached 2 weeks ago, then some mild pullback as safe havens test highs or higher, then we'll see. With even perma-bull Tom Lee worried about August perhaps not much damage. NDX in particular looks fantastic and ready to test all time highs.

Pivots
USA mains - SPX set halfway above YR1s, INDU hasn't tagged yet. Tech set above 2HR1s very bullish. IWM strong above Q3R1, NYA some struggle to clear Q3R1 but no sign of rejection. That's the key point - fast move up to major levels but no sign of rejection yet. INDU dipped the most after 7/20 high but held Q3R1 has support.

Safe havens - TLT and GLD strong, yet VIX and XIV showing strength for stocks. Enjoy the choices to make $ in markets.

Global - other
Oil traded under all pivots on the definitive CL1 chart for 2 days last week, but holding D200 and looks set up for bounce. ACWI bullish, EEM continuing to trade above YP is bullish, EWZ continuing as the 2016 leader (above YR1!) despite drop in oil. China via Shanghai and FXI weaker, then EFA, DAX and NKY all weaker than USA, but right now doing OK. If lower, the first indexes to move below all pivots probably Shanghai Comp and NKY. 

Of course, new August pivots for all markets in play. 

Other technicals
These vary per chart. INDU worked off RSI extreme is bullish fashion so far, and NDX ignoring overbought very bullish for the market. 

Valuation & fundamentals
What to say with Thomson Reuters p/e at 17.20? Stocks keep ignoring valuation concerns with bonds yields near all time lows. If view of final euphoria stage correct, maybe we will see 18-20x earnings. Currently 20x on Thomson data is 2527.

Sentiment
Extremes reached on 3/4 indexes I track last week, so far markets holding up well with only NDX continuing up.

Timing
7/29-8/5 one of the stronger windows of the year. Is it stock high or safe haven high? I'd rather see a stock trading top here. At the end of August I'll do dates for September.  

August dates
8/9-10 stocks
8/12-13 bonds & gold
8/21-22 stocks
8/23-24 bonds & gold
8/29-9/1 all mkts

 

Valuation and fundamentals

Thomson Reuters SPX forward p/e lifted to 17.20 from 17.04 despite SPX dropping 2 points, means earnings slightly down from prior week. 17x possible support is 2148, 17.5x resistance 2211.  

WSJ data is different, and keeping SPX p/e in a tight range of 17-18.50 for most of the year since March. Currently 18.4, with 18.5 possible resistance 2183.

The Citigroup Economic Surprise Index dipped down after a fantastic move up from most of July. It is still above the zero line, but a deeper fade would mean selling of stocks and safe haven new highs. 

TPPs market top checklist

Version 3. See the tag for prior versions. 

Sum
Not calling a top yet, but some conditions for a top approaching and/or more in place. Now we have a timing window 7/29-8/5 which I have listed for several weeks as one of the stronger windows of the year. Sentiment extremes reached the past week. Not sure what to say about valuation. Unless we have multiple indexes showing rejections and VIX / XIV confirmation, usually it is better to simply hold longs instead of dinging account with hedging commissions etc. 

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

SPY and ES1 at major resistance, other indexes holding resistance levels as support. No sign of any rejection. No VIX / XIV alert. Not a top yet. 

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

On the daily charts, DIA reached RSI 68.9 on 7/20 and faded from there. QQQ reached 69.97 on 7/27 and kept on powering up. SPY and IWM not yet.
INDU quarterly chart has the same RSI issue as pointed out last time, and looks like a bit more fade from near monthly BB test. 
For now other technicals say pause not rejection.  

3. High tested with at least 1 lower high?

After making highs on 7/20, SPY has been up in the same area for several days. DIA went a little lower, IWM bit higher, QQQ much higher. No high test / lower highs.

4. Safe havens showing concern? 

Yes, but only TLT and GLD not VIX / XIV. 

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

Mildly, but adv / dec volume holding 0 line. Again, NYA & IWM strength 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. Citigroup Economic Surprise index did a great job confirming the stock breakout, but dipped down after worst than expected GDP on Friday. Valuations on the higher side, but in later stages of 2009 bull market maybe we will see SPX forward p/e 18 - 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
TLT and GLD both look strong, setting up for high tests or higher. Yet VIX and XIV look equally bullish for stocks.

If you took VIX seriously, then even with USA indexes at major resistance there was perhaps one day for a partial hedge on 7/21 just due to the reversal bar. But no reason to be worried about a big top yet. XIV looked toppy on 7/21 too, but not on any pivot. Then no red at all approaching the YR1 and then promptly soared above it. What I am getting at here is no sign of VIX / XIV confirmation of any top, which is part of my top checklist. 

For a while I was perplexed by simultaneous stock and bond strength and didn't like the  the contradiction. But I have shifted my perspective to view this as a global wealth inequality / central bank asset inflation scenario, where all assets held by the wealthy are going up. End of contradiction. For now, embrace it as whatever is leading can be TLT AND DIA / SPY / QQQ, which just makes it easier to make money in the markets. There is still some relative difference though, and if TLT is soaring stocks are more likely sideways or down (check TLT vs SPY 7/21 on).

TLT
Weekly chart looking pretty good here holding 2015 highs as support. Watch RSI on the next move up, because maybe setting up for divergence high test. If higher then 2HR1 / YR2 in play 145-148.
Daily chart didn't even tag JulP. I thought for sure we would reach it. Target failures are only clear in hindsight however. For now this is a sign of strength; the last tough of a pivot ie good long entry was 6/1 and TLT has been above all long term and medium term pivots since then, although not one but two seemingly clear rejections from major resistance. And yet, zoomed right back up each time. If higher then Q3R1 high test, if above 2HR1 / YR2.

GLD
Weekly chart similar to TLT, not yet at major resistance and well above long term support. 
Daily chart also did not tag AugP on the drop, with the last tough of pivot 6/7. 

VIX
Weekly chart just fantastic confirmation on the major stock buys of the year - the big red bars dropping from the YP. Less likely to see major support though, as 2HS1 is 8.05.
Daily chart shows better chance of seeing Q3S1 but that is still very low at 9.99. Well under Q3P, so as long as VIX stays below SepP then stock bulls have the ball.  

XIV
Wow, above YP! As it turns out already at 2HR1, so that is the next level to watch. Maintaining above YP on any stock pullback would be bullish. 
Daily chart showing launch above YP on 7/29. RSI extreme reached so we'll see if it maintains and/or what happens at 2HR1.

USA main indexes

Prior 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. 
Last week: SPX same, INDU holding Q3R1s as support, Tech set strong above 2HR1s, RUT above Q3R1 and NYA bit below Q3R1s. 

Although INDU set faded a bit from JulR1 top on 7/20, it has held Q3R1 as support since then. SPX set struggling to clear SPY and ES1s, but no sign of rejection. Similarly, NYA struggle at Q3R1 but no rejection, and NYA above. Most importantly, Tech set getting in gear for one of the best moves of the year. Maintaining above 2HR1 would be bullish. Next resistance is Q3R2.

The bottom line here is that so far indexes have digested gains in a healthy manner with no sign of rejection from resistance. NDX in particular looks ready to make a new all time high. 

SPX / SPY / ES1 / ESU
SPX and ESU maintaining above YR1s, but SPY and ES1 YR1s still look like resistance. Any higher would be bullish; if lower then SPX YR1 2163 may still hold as support. 

NDX / COMPQ / QQQ / NQ1 / NQU
NDX and COMPQ finally getting in gear with fast move above YP - the 3rd time the charm because unlike the previous two disappointments this year this rally went straight to 2HR1 and above. YR1 looks doable by year end. The daily charts show quarterly and monthly resistance levels, but for now anything above 2HR1s is a sign of strength. 

INDU / COMP / DIA / YM1 / YMU
INDU almost but not quite tagged major resistance; COMP exceeded slightly and fell back. DIA shows the top near JulR1 and mild pullback from there to Q3R1s which are holding as support. Not bad, but I'd really like to see a tag of INDU YR1 for a trading top. 

RUT / IWM / RJ1 / RJU
All these look the same; above Q3R1 which is holding as support, not near any resistance yet although we'll have new August pivots on Monday. 

NYA / VTI
Note how NYA weekly chart 6/27 bar and 7/4 bars confirmed rally, although like NDX choppy frustration from 4/11 clear to 6/20 break. For now above support, YR1 looks doable by year end. NYA daily chart struggling a bit with Q3R1; VTI looks more like IWM, above Q3R1.