Safe havens

Sum
Safe havens have screamed stock buy from 11/9. VIX from 2HP all the way under all pivots and has stayed that way. XIV held YP on the low and back above all pivots as of 11/9 as well. TLT and GLD crumbling below long term levels (11/10-11) also say risk on. 

The main question now is how low will VIX go before we see stock selling. Sometimes a quick dip down is all you see (like 10/24 into 12s then a jump) but it can also have an extended period like early July all the way to September in a fairly low range without a significant advance, and stocks held up accordingly. For now long and strong stock indexes with VIX below all pivots I say, although given other factors we could easily see more digestion and a shakeout. 

If you are in financial longs, it might also be worth watching TLT. Last week I suggested it as a maybe hedge idea if it held Q4S3. 1 day break 1 day recovery, boucne, then gains and setup gone the next day. So far it has been better to not mess with anything, but with selling slowing down this may still happen, but I think upside limited to the YP area. 

GLD and GDX area weak below 3 of 4 pivots. It is too late to short, and avoid on the long side. 

All charts
Weekly with long term levels only
Daily with long term  medium term
Daily with pivots only (no support or resistance) and moving averages for entries

TLT
Weekly chart clear resistance at 2HP then plummet through the YP. 
TLT 2 day bounce attempt above Q4S3 that quickly failed. Lows still on NovS3. 
If you wanted to short, a move under Q4P with falling MAs and MACD change on 10/3 was the place - study this setup, because if you want to short anything this is everything you want to see. 
While I have to be bearish long term on TLT (and have been) last week I thought chance of trading low. As it turned out TLT just below Q4S3 but above the monthly S3. Weak but as selling slows down the chance of bounce increases. 

GLD
Weekly chart below 2HP and YR1. 
Like TLT it is below Q4S3, but on a monthly support on the lows (S2, where TLT is on S3). 

GDX

VIX
VIX has confirmed stock buys 11/9 on by being under all pivots, with levels clearly acting as resistance. It is now under NovS1 and NovS2 is unlikely. 

XIV
Did best job on market 11/4 lows, holding YP near exact (every other index I track was breaking levels)

VI1
Continuous VIX futures below all pivots from 11/9 as well. 

USA main indexes

Prior week: "4 of 5 USA mains back above all pivots! Amazing! INDU and RUT set leading, above YR1s. SPX and VTI testing. Tech not in a party mood, below is NovP and just a bit above Q4P."

Last week: SPX set above YR1 and tag of NovR2; Tech set bit weaker under NovP; INDU above YR1 and already at 2HR1; RUT soaring; VTI slightly above YR1. 

Sum
So far more bullish for SPX & VTI to clear YR1s and join INDU & RUT that were already above. But markets have reached enough pivot areas for a possible trading turn - SPY NovR2, DIA 2HR1, QQQ NovP. These are the levels to watch next week, along with the YR1s which could act as support on SPX set, INDU and VTI. 

Charts
Cash index weekly charts with long term levels only
Daily ETF chart with long term & medium term pivots
Futures "1" continuous contract with pivots only (no S/R) and MAs for clarity of entries
Futures current contract with the works

SPX / SPY / ES1 / ESZ
SPX weekly chart looks like going to 2HR1 at 2209.
Daily SPY shows low near Q3S1, recovery of pivots, few days pause at YR1, then above, recent high on NovR2. That is a lot, from nearly NovS2 to R2. Holding above YR1 is more bullish.
Futures show the globex low down at NovS3. 

NDX / COMPQ / QQQ / NQ1 / NQZ
NDX holding 2HR1, while broader COMPQ a much better advance from this level.
QQQ and futures show stall at NovP, still making tech the weak link among USA indexes.

INDU / COMP / DIA / YM1 / YMZ

RUT / IWM / RJ1 / RJZ
Weekly cash chart, wow. 2HR1 very doable.
IWM daily chart - if you bought first index to clear above major resistance then you are doing very well here.
Futures charts even better with nothing but blue from 11/4.

20161119 17 RJZ D.png

NYA & VTI
NYA is weaker because it includes more international proxies. Above all pivots and not yet at resistance.
VTI has just cleared YR1 slightly which is bullish. Note this was the high area in August & September. 

Valuation and fundamentals

In a curve fitting system that I don't understand, Thomson Reuters forward 12 month SPX P/E ratio increased from 16.16 to 16.67 last week, as SPX was up 15 points. This means implied earnings estimates dropped from 134 to 131. 

Current 17x forward earnings at 2225 is resistance. 

* * *

Citigroup Economic Surprise Index jumping back into positive territory! This helps the bullish case. 

ps - having trouble with links today; will fix when I can. 

Shorts

I mentioned a few days ago that I would start to mention more short trade setups, anticipating continued volatility in markets. Let's review the winners & losers list as of 11/12. We are not going to pick tops here - that means we are not shorting strength. We want to be long strength and short weakness. 

(Copying from the 11/12 post)
Weak
GLD - 2HP break! (still above YP, but below Q4P and NovP)
GDX - 2HP break! (still above YP, below Q4P & NovP)
CL1 - YP break! (still above 2HP; also note USO weaker below all pivots 11/1)
EFA - Below YP all year, below Q4P & NovP since 11/1 (still above 2HP)
FXI - 2nd break of Q4P 11/9 (still above 2HP)
EEM - YP break! (still above 2HP though)
INDA - YP resistance, 2HP break, below all pivots!
TLT - YP break, below all pivots!

In addition to pivot status we would like:

MACD or RSI setup (often MACD going our way, and avoid shorting when RSI is already oversold)
Moving averages with falling slope
Not on obvious support on a higher timeframe chart (weekly, monthly, quarterly)

With this in mind, GLD, GDX are late. Oil held pivot support and rallied. TLT is wayyy late for a short but fulfilled all setup criteria 9/30-10/3. INDA is quite late. 

EFA, FXI, EEM are left. EEM is sitting on a rising D200 and while that may break we could have a battle around that area. In addition, weekly chart is on support. This leaves EFA and FXI. 

Actually these are a bit late as well. Both were under Q4P with falling MAs as of 11/9, though EFA was sitting on a D200 and tough to take. FXI and EEM both were the clear choices as of 11/9. But if looking for something now -downtrend not on support, not oversold, weak bounce are the best candidates. 

If we think markets will ultimately go higher, then we want to hold our USA longs. If we have some shakeout, weaker indexes will probably drop, so we can try to play this by some shorts. 

 

 

Breadth

There are many ways to analyze strength in the market. Usually when the market advance is strong, it is a positive - meaning that higher highs with some sign of weakness is yet to come. 

With that idea in mind, here's the advance decline volume difference chart with a 10MA in blue. Note the recent spike up to 1000. This is a healthy advance, exceeded only twice in the last twelve months or so: early October 2015, which launched a terrific rally that peaked in early November; and early March 2016, which again took 4-6 weeks to top out. Several other rallies matched what we just saw: mid February 2016, part of the rally off the lows; mid April 2016, which was a key high; early July 2016, again preceding a strong rally.

So the only one of these at a top was the April 2016 peak, which itself was a lower high from March which was followed by obvious deterioration going back towards the zero line and under. 

The most likely thing here is higher index highs on weaker breadth, not an immediate top and drop. If sentiment meters get more toppy (see yesterday's post) we are more likely to see a shakeout and more digestion of recent gains, but I don't think the terrific Trump move is done just yet. 

We can also expand our view to the weekly chart. This shows how few real buyers there were before the election, as this trough was exceeded only a handful of times this decade: June 2010, May 2012, November 2012, August 2015 and January 2016. These were all major lows. I'll be watching that the 10MA can continue into positive territory. 

Sentiment

When working full time at a small hedge fund I did a full sentiment report once a week. A sentiment extreme is not a trading signal in and of itself but we did have notable sentiment extremes on the January and February market lows, as well as the mid August top. I wrote at the time that such extremes often contribute to a key high area - and they did.

My method is to view standard put-call with a 10MA, ISEE index, NAAIM Exposure Index, and AAII Survey all together. A decent market turn will often have extremes on at least 3 of these.

There are other methods out there - The Fat Pitch blog also does a good job of writing up the BAML asset managers survey, which I think is worth considering as well especially from a longer term perspective.   

But still the four I track are working pretty well (along with pivots, other technicals, valuation & fundamentals and timing) in getting turn areas. Since August the bullish extremes have been worked off, and we understandably saw the two specifically option related meters (put-call and ISEE) make bearish extremes into the election. But now things are moving the other way. 

Keep in mind that November through January is seasonally bullish, and we are likely to see higher than usual sentiment numbers that may not drop the market in the same way as the rest of the year. 

Daily put-call is dropping back into normal, but not at bullish extreme yet; weekly put-call nowhere near extreme.

ISEE has yet to make daily spike highs, which we are likely to see near tops.

NAAIM as of last week is nowhere near extreme, but probably made a big jump this week. 

But AAII bull % has soared to 46%, by far the highest of the year. 

Data from 2005: 14% percentile (meaning only 14% were higher than this one)
Data from 2010: 12% percentile
Data from 2012: 10% percentile
Data from 2014: 7% percentile
Data from 2015: 3% percentile
Data from 2016: highest value

So what matters here? This is either somewhat high, extreme or notably extreme depending on where you start your data series. Thus conclusions would be approaching a top but not yet, upside limited, or cut longs and perhaps short depending. This is exactly why I am against pure quantitative analysis without a qualitative component (everyone seems to be a big fan of the quant side these days, while forgetting that how they select the data impacts the results). Let's consider the market environment. We are in a post QE world, but it was tapering through most of 2014. So I think the numbers that matter here are 2015 and beyond. 

Sticking with that year for the remainder:

Bear %s only 35% percentile, and the bull-bear spread 7% percentile. 

As of now this and the other meters are things to watch. The more the others join in a sentiment extremes, the more likely we are to see a shakeout of weak hands and possible top area. This means I am now watching for lower put-call, daily ISEE spike highs (125+), NAAIM mangers 90+, and a bit fewer AAII bears to warn of a major top. 

But still, as long as SPX and INDU hold above YR1s, bulls have the ball. 

New site policy

I'm going to start mentioning shorts more often, and adopt more of a mostly long yet some short strategy. 

Up to this point, I have minimized actual short recommendations because:

1. It is usually easier to buy what is going up, because money is seeking someplace to go. For example, TLT and GLD longs were easier in January compared to shorting the market, and ultimately had more gains as well. 

2. Tops tend to stretch out - which is an advantage on the long side, not the short side. Though to be fair, when it happens the down move is much faster.

3. If you have cash on sideline on a drop, then you can watch to buy the leaders on any signal or speculative signal. This worked great on financials in Q4. 

That said, due to the election and other factors I believe we have entered years of significant volatility. I'm not just saying that due to Trump - consider, I have already laid out some big picture thoughts in August that are playing out rather nicely. 

I also have already posted an ideal bull market high on SPX in the 2250-2500 range from 2017 Q2 to 2018 Q2 here. Keep in mind that bearish version targets have already been met. 

These factors are now combining with the gang of clowns that is now leading the most powerful nation on the planet. So even if there is a Trump honeymoon - which could last one week or two years, who knows - I think markets will ultimately go the way of the Trump Plaza (and Shuttle, Steaks, etc etc etc). In that kind of environment lots of things will be going down. I'll still follow rules for entries as discussed here. 

For shorts we ideally want to see:

Pivot resistance - Q, H, Y (monthly while above three others not enough)
MAs with falling slope
MACD negative, or RSI setup

To be clear:

I'm not going to try to start picking tops ie shorting at resistance levels. Even though someone less familiar with my perspective may think this would be rather obvious, I have found that shorting at resistance (R1, R2, R3 etc) or buying support (S1, S2, S3 etc) is not the best way to use pivots. We want pivots on our side, regardless of trend. Long above, some shorts if below.

$USD

DXY is breaking out up above 100. So far posts from October - both massively bullish - are playing out.

10/6: "$USD has quietly consolidated for quite a while. If you paid attention to $USD strength then gold or GDX shorts were the easy call, especially when they opened below Q4Ps and were below OctPs as well. Anyway, my main point here is that just because $USD has been sideways since 3/2015 doesn't mean the rally is over. It is entirely possible that DXY breaks out above in months to come and this could, along with rising interest rates, be the next big move in markets. This would probably put a lid on USA indexes, even if rising interest rates support financials."

10/22: "All systems go for $DXY on every chart below - quarterly, monthly, weekly on other technicals, then weekly on long term pivots, daily on all pivots, and a last daily pivots & technicals chart. While I think it has potential to go substantially higher long term - let's say breakout above 100 - near term expect to see 99.18-88. Continued $USD strength will cap upside in USA stocks, especially INDU, and could pressure the popular emerging markets trade as well."

Even though this hasn't limited INDU upside yet, at some point it will, and what the market has already realized is USA small caps and financials are the only place to be. Now later, we may have risk off if rates and thus $USD goes too far too fast, but let's not get ahead of things. 

DXY Q
Heading towards a big 61% level from 2001 top to 2008 low at 101.70. This chart looks fantastic, and I think we will see much higher than that. 

DXY M
Going for highs and the 100 area likely turning into support. 

DXY W
Recent launch from 2HP and YP has already reached 2HR1. YR1 by year end? 

DXY D
11/9 was the entry (or hold) bar - test and hold above 3 pivots, above all pivots, above all MAs. Now fully overbought, but currencies of all markets tend to stick in trends more than stocks. 

Abbreviations and chart notes

This site shares my thought process on markets, especially technical analysis through pivots. 

I tend to "think out loud" on the posts and cannot really get around referring to pivots in posting. Please refer to the FAQ page and video for more explanation. Perhaps this list will also be helpful.

Pivot abbreviations & charts
YP = yearly pivot, large orange crosses in charts
YR1 = yearly resistance 1, large red crosses
YR2 = yearly resistance 2, large red crosses
YR3 = yearly resistance 3, large red crosses
YS1 = yearly support 1, large green crosses
YS2 = yearly support 2, large green crosses
YS3 = yearly support 3, large green crosses

1HP, 2HP = 1st half (Jan-Jun) pivot, 2nd half (Jul-Dec) pivot, large orange dots
1HR1, 2HR1 = 1st half resistance 1, 2nd half resistance 1, large red dots
1HR2 , 2HR2 = 1st half resistance 2, 2nd half resistance 2, large red dots
1HR3, 2HR3 = 1st half resistance 3, 2nd half resistance 3, large red dots
1HS1, 2HS1 = 1st half support 1, 2nd half support 1, large green dots
1HS2, 2HS2 = 1st half support 2, 2nd half support 2, large green dots
1HS3, 2HS3 = 1st half support 3, 2nd half support 3, large green dots

Q1P, Q2P, Q3P, Q4P = 1st quarter (Q) pivot, 2nd Q pivot, 3rd Q pivot, 4th Q pivot, medium orange crosses
Q1R1, Q2R1, Q3R1, Q4R1 = quarterly resistance 1 in 1st, 2nd, 3rd, 4th quarters respectively, medium red crosses
Q1R2, Q2R2, Q3R2, Q4R2 = quarterly resistance 2, medium red crosses
Q1R3, Q2R3, Q3R3, Q4R3 = quarterly resistance 3, medium red crosses
Q1S1, Q2S1, Q3S1, Q4S1 = quarterly support 1 in 1st, 2nd, 3rd, 4th quarters, medium green crosses
Q1S2, Q2S2, Q3S2, Q4S2, quartelry support 2, medium green crosses
Q1S3, Q2S3, Q3S3, Q4S3, quarterly support 3, medium green crosses

JanP, FebP, MarP, etc = monthly pivot, small orange dots
JanR1, FebR1, MarR1 = monthly resistance 1, small red dots
JanR2, FebR2, MarR2 = monthly resistance 2, small red dots
JanR3, FebR3, MarR3 = monthly resistance 3, small red dots
JanS1, FebS1, MarS1 = monthly support 1, small green dots
JanS2, FebS2, MarS2 = monthly support 2, small green dots
JanS3, FebS3, MarS3 = monthly support 3, small green dots

Long term = yearly and half year pivots, often shown on weekly chart, included on daily charts
Medium term = quarterly and monthly pivots, shown on daily charts
Short term = weekly and daily pivots, shown on 1-2 hour charts

Pivot only charts = refer to charts where I show pivots, but no support or resistance for clarify of trends. You will see crosses and dots showing yearly, half-year, quarterly and monthly pivots, and moving averages as below. I may also start referring to these as P4 charts meaning yearly pivot, half-year pivot, quarterly pivot and monthly pivot. 

Common charts and other abbreviations
USA main indexes = SPX S&P500, NDX Nasdaq 100, INDU Dow Industrials, RUT Russell small caps, NYA New York Composite, VTI Vanguard Total Stock Market Index Fund

SPX set, Tech set, INDU set, RUT set, all refer to the index and other variations which are the ETFs and futures related to the index. Futures are both '1' continuous contract or H, M, U or Z. Thus the "SPX set" means SPX index, SPY ETF, ES1 continuous contract futures, and ESZ or whatever current month futures. Pivots will be similar but not the same and often the group together will give the best signals instead of picking just one. For simplicity and ease of access I often refer to the ETFs in the SPY daily comment, but in blog posts will often be more comprehensive. 

ETFs & indexes - if you don't know what these are, please search google or a common finance or market related site like CNBC or yahoo finance
SPY
DIA
IWM
NYA
VTI
DXY USA dollar index

Safe havens - my collective term for TLT bonds, GLD gold, GDX gold miners, and VIX & variations
VIX - used extensively, CBOE options pricing index often works very well in confirming other setups
XIV - inverse ETF relating to VIX, but not the same

USA sectors
SMH/SOXX - two common semi-conductors ETFs
XBI/IBB - two common biotech ETFs
XLF/IYF - two common financial ETFs

Global ETFs
EEM - emerging markets
FXI - China via Hong Kong
RSX - Russia
INDA - India
EWZ - Brazil
ACWI - Broad international index

Other chart abbreviations
MA = simple moving average
10MA in aqua
20MA in orange
50MA in purple
100MA in thin black
200MA in thick black
400MA in thick brown

D, W, M, Q = daily, weekly, monthly, quarterly 

BB = Bollinger band, standard setting
RSI = relative strength index, standard 14 settig
MACD, common technical indicator, tweaked setting 7, 12, 5

Divergence = higher in price, lower in indicator (usually RSI, can also be Bollinger bands) OR lower in price, higher in indicator

Valuation = primarily SPX forward P/E ratio
Fundamentals = Citigroup Economic Surprise Index

Sentiment = standard CBOE put-call ratio, ISEE meter, AAII individual sentiment, NAAIM managers exposure

Timing = proprietary timing model
 

Total market view

Review
11/6 Total market view: "Bottom line - Trouble alert from 10/27 was quite correct. The conditions to lift that trouble alert will be a VIX rejection of a pivot with clear move below the level. Right now VIX is above its 2HP and not yet at its higher YP. Either we need to see a move below 2HP, or higher to YP and rejection from there. Still I think it is better to be cautious with any long attempts with VIX above 2HP.

I will start sounding more bullish on the market when we see Tech set recover above its Q4P (QQQ 114.83), RUT set recover its YP (IWM 116.23), NYA above its YP (10302), and then SPX above Q4S1, VTI above Q4S1, all with VIX and XIV constructive for risk. Until then, cash on sidelines is quite fine." 

Result was the whole list of bullish conditions happened the next trading day, and I noted this in SPY daily comment: "Everyone back in the pool! ... Everything checks out - Tech jumped above its Q4P, RUT/IWM back above YP, NYA huge jump above its YP; SPX & VTI above Q4S1, and DIA amazingly above all pivots! VIX confirmed with decent looking reversal bar below the 2HP, and XIV had huge hold of YP as well."

11/9 SPY Daily: "So, DIA started fractionally below the Q4P and jumped above in the first 15 minutes. VIX started a bit above 2HP and collapsed all day. The Pivotal Perspective is clear. We don't know what will happen tomorrow, but for now, the markets are quite fine."

Sum
What a week. But let's keep it as simple as we can. 4 of 5 USA mains are above all pivots (QQQ lagging, below NovP). 2 of those have cleared YR1s, which were resistance from August on. At the same time, safe havens TLT and GLD are collapsing while both VIX and XIV have said all clear from 11/7 on. This is all very bullish and must be respected no matter what you think of upcoming politics. 

If you didn't adjust 11/7-9, or wanted to let dust settle a bit, or didn't want to buy the news, then positioning could be tougher from here. Yet as long as VIX remains under all pivots, and we don't see rejections from USA main index YR1s, then it is right to be more long. If we do see another VIX move above Q4P, or QQQ breaking Q4P with other YR1 rejections, then we can try to play that move or simply wait for the next good looking setup. It would be nice if that were a decent looking pullback on leaders, but the market is not often nice. 

Basic bullish scenario from here is DIA and IWM staying above YR1s, QQQ holding Q4P, and a weak bounce or lower on safe havens. Basic bearish move would be SPY and VTI YR1 rejection with QQQ Q4P break, combined with VIX jump back above Q4P. But after a big move like we just had, the most likely thing is some digestion and consolidation. 

Positioning (long emphasis)
The Pivotal Perspective is to buy the leaders, and avoid, hedge or short the losers. As stocks were stabilizing in mid February I pointed out the relative strength of EWZ and RSX. Then in August I pointed out EEM looked like a great buy. But those days look over as global stocks have taken the biggest hit so far. You might like to review a current list of winners and losers from The Pivotal Perspective. 

Due to the caution alert issued 10/27, you had cash or hedges. Then 11/7 move was positive for the market across the board and alert was lifted. If we kept to the current winners pre-Trump, those were: QQQ on USA mains, SMH/SOXX as USA sector, XLF highlighted several times as recently strong, then EWZ on global indexes, EEM also recently strong. Mostly markets waited on 11/8, then a lot changed on 11/9 - QQQ under NovP while DIA and IWM soared above, XLF massive leap, SOXX shuffled, EEM & EWZ crushed.

If you paid attention, you rotated out of losers and held or added to the leaders. EEM below Q4P on 11/9 while others are screaming higher? Out or reverse short. EWZ lower and below NovP on 11/9 with DIA and IWM clearing all? Shift. Though pivots were clear, I'm not saying this was easy to make major allocation shifts the day after the election. But given the volume and pivots, this is what the market was saying to do. 

If you didn't do that, hopefully you at least caught the move in financials and can now look for another good setup. Since The Pivotal Perspective was recommending cash or hedges last week, I also wrote up what made for a good entry last week here. 

Bottom line
USA indexes look great, most especially DIA and IWM among mains, and XLF/IYF financials among sectors. Safe havens look terrible. This is very bullish action for USA stocks. But the positioning was fast - you had to cut some and buy others to make the most of markets. If market looks more bullish per scenario above, we want to add on some pullback on the leaders. If not, then try to protect some gains and wait for the next setup.

Pivots
USA main indexes - Several YR1s to watch this week. SPY and VTI are testing YR1s, DIA and IWM slightly above. QQQ Q4P also level to watch. Stronger and very bullish if SPY and VTI join the others above YR1s, weaker if DIA fades back below as QQQ breaks its Q4P.

Safe havens - TLT looks terrible, which has been just fine if you have under-weighted, avoided, hedged, or shorted from Q4 as all comments towards negative charts have born out. Yet I have a few reasons why I think TLT could be set up for a near term bounce (be sure to read through to the end of that article on the actual recommendation at this point). GLD is catching up so to speak to TLT, breaking its 2HP (TLT broke the 2nd time on 10/24, GLD broke the first time on 11/11). Basic point is this: TLT & GLD weak, VIX below all pivots all means bullish scenario for stocks more likely to play out. 

Global and other - Ugh, global stocks were the biggest losers of the Trump win. We could certainly have a corrective bounce soon enough, but given The Pivotal Perspective we just have to respect this with an underweight, hedged, avoid or short anything that has long term weakness compared to other asset classes that are much stronger. The other thing is that when you buy USA stocks you have monthly and quarterly charts that are much better, compared to say EEM that is, on the monthly chart, below a rising 10MA, a falling 20MA, falling 50MA, and falling 100MA. 

Other technicals
This is about the fastest move from RSI oversold to overbought on daily charts I can recall. Several indexes reached one or the other, and IWM even both, all in about 1 week. Markets can ignore overbought - just check SMH/SOXX on the summer rally - but DIA daily RSI at 72, 3 days outside the daily Bollinger band, and now pushing outside the weekly Bollinger band, all means some reaction and digestion is the next natural move.

Valuation and fundamentals
Currently mixed for the market, which is an improvement on the last several weeks. 

Sentiment
Put-call ratios were understandably very high heading into 11/8, and perhaps the election move is just something the market makers are engineering to destroy all those puts. No one never really knows why the market moves why it does. Regardless, AAII sentiment has jumped to the highest in 2016, but when we consider more years it is not a huge deal. Still, top 11% percentile for 2015-16, and top 26% percentile 2014-16. Sentiment will be more toppy if we see ISEE spike highs too. 

Timing
November dates (published 10/29)
11/1 - non event, middle of drop (major low 11/4 not close enough) 
11/18-21 - not sure how this will work out given election

Bonds

I am bearish bonds & bullish rates. This is very easy to say now. It was not so easy in mid August when when I wrote this:

"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."

And this:

"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."

OK, i'd say these are nicely on track. But here are reasons why TLT is more likely set up for a bounce (rates down) as the next near term move. 

First reason - TNX YP
Standard long term pivot chart below, with long term pivots, support and resistance only (no medium term). The YS2 was part of the turn call in early July - even though TLT was only on quarterly level, I saw this and thought it increased the chance of a major turn. So here we are at a huge move from YS2 all to YS1, some digestion, and a fast jump to YP. Perhaps it will jump above this too. But still with the YP here we can watch for a possible reaction.

Second reason - ZB1 and ZN1 continuous contract futures charts
Are also at their YPs here. 

Third reason - TLT Q4S3 (!) and nearing NovS3
This is pretty rare. TLT is below its YP which may act as resistance, or may recover. Often before there are real long term trend chances - USA stocks stabilizing in mid 2009 for example, there are few tries at a big level. The same thing could happen here - break, recovery, break, weak recovery, then that is IT and definitive move lower. Also check the volume bars with massive spike on 11/9, still very high on 11/10, then back to normal on 11/11. First wave of selling could be in right?

Fourth reason - TLT 161% ABC
This chart shows the drop from 9/28 high to 11/11 low was 161% of the move from the 7/8 high to 9/15 low. 

Additional considerations
RSI only daily chart is 19. This is *by far* the lowest of the decade. It is fairly rare event even to have RSIs below 30. Often when RSIs are this low, the market needs to make a divergence low - meaning a bounce, then another move lower in price but higher in RSI. I'm not saying this is *the low* in TLT. I think the path is turn, digestion for some period of 1-4 weeks, then another move lower in TLT and higher in rates.

Lastly, some other timing work points to a turn.

I'm not saying long bonds as a position. TLT is below all pivots! At this point it would be a speculative trade which I recommend *very rarely* because it is just easier to buy what is going up. If you are not all in on what is going up when multiple asset classes are above all pivots, don't start buying what looks the worst. But it could be an interesting hedge against XLF longs,  a partial short cover point, or short term trade possibility for those playing the hourly charts or short term options depending on what unfolds next. Now matter how you swing it this is a counter-trend move here and these are best approached with caution, and to be clear, I am pointing to the possibility of this move and not an actual trade rec at this point. 

Remember, the key levels here - TLT Q4S3 121.89, TNX YP 2.13, ZB1 154.79 and ZN1 127.17 - have to turn, or overshoot and recover for this to be valid. 

Monthly charts - another look

I posted monthly charts on key indexes last week and thought they looked problematic. But I also noted that a lot could happen by the close of the bar, and it has. Let's take another look. 

In general, stock indexes look quite healthy led by INDU on the main indexes, then RUT; and XLF on the sectors. Safe havens GLD and TLT are dropping hard. 

SPX M
Successful test of 2015 high under way, not just because price back above 2015 top if 2134, but because it held the monthly high of 2107. 

NDX M
Holding the 2015 monthly close high, slightly above 2015 price high, but resistance again at the 2000 top of 4816.

INDU M
Wow. This had been the weakest of the USA mains, and suddenly leading.

RUT M
Looks ready for new highs.

XLF M
Well under 2007 top, but soaring above 2015 highs. 

DXY M
Above 100 or H&S top? 

GLD M
Approaching key 20MA, since already below 10, 50, and 100 (no 200 on this chart)

TLT M
Last but not least... this looks like a big move but just common pattern after RSI extreme a la 2009, 2011, 2015 and again 2016. How far it drops is the real question.

Winners and losers

Here at The Pivotal Perspective we are trying to catch the winners, hold those, then take some gains and rotate into other winners. This can be long term, medium term or short term depending on your style and role in the market. 

We avoid the losers, or hedge, or short. 

A lot has changed this week. Here's a rundown of the things I track. 

Strongest
DIA - above all pivots, above YR1
IWM - above all pivots, above YR1
SOXX/SMH - continuing strong above all pivots, above YR1, above 2HR2

Strong yet watching
SPY - above all pivots, testing YR1
VTI - above all pivots, testing YR1
XLF - above all pivots, testing YR1
DXY - above all pivots, testing Q4R2
IYF - above all pivots, approaching YR1*

Recently strong
Shanghai Comp - above 2HP, Q4P and NovP, but under YP due to big rally and plunge in 2015

Middling or testing
QQQ - testing Q4P, below NovP
NYA - testing Q4P, slightly above
ACWI - testing Q4P, slightly below
EWZ - testing Q4P, slightly below; also note, recent 2HR1 rejection, testing YR1
RSX - testing Q4P, slightly below; also note, recent YR1 rejection

Weak
GLD - 2HP break! (still above YP, but below Q4P and NovP)
GDX - 2HP break! (still above YP, below Q4P & NovP)
CL1 - YP break! (still above 2HP; also note USO weaker below all pivots 11/1)
EFA - Below YP all year, below Q4P & NovP since 11/1 (still above 2HP)
FXI - 2nd break of Q4P 11/9 (still above 2HP)
EEM - YP break! (still above 2HP though)
INDA - YP resistance, 2HP break, below all pivots!
TLT - YP break, below all pivots!

* XLF/IYF both financial index ETFs but slightly different in structure

 

 

Safe havens

Last week: "For positioning, while VIX is above 2HP that means caution until we see back down OR a move up to YP, but not above, 27.46. XIV holding YP would be better for bulls, but needs to recover Q4P."

While I guessed the wrong way, VIX started down on 11/7 and finished under the 2HP, stayed under the 2HP on 11/8, then had a massive collapse on 11/9 confirming the bullish move in stocks by closing under all pivots. 

All charts
Weekly with long term levels only
Daily with long term  medium term
Daily with pivots only (no support or resistance) and moving averages for entries

TLT
I have had little positive to say about this all Q4. The choice to short or not is up to you, but if you are not short, then at least use this information to adjust your bond portfolio and overweight financials. Weekly Collapse under YP without any attempt at bounce! Daily RSI very oversold and sitting on Q4S3, but anything below YP is weak. The bearish start to Q4 was clear on both pivots and MAs, but the real tell of breakdown was the 2HP gave up, indicating long term weakness, and conveniently the D200 said the same thing. 

20161112 30 TLT W.png

GLD
Breaking 2HP and YR1, and like TLT already at Q4S3. Daily chart with MAs shows break of D200, so effectively gold has "caught up" technically to TLT (ie, both under 2HP and both under D200 - yet TLT weaker below YP and GLD above).

GDX
If you were thinking long again anytime after the 2HP hold, you had major warning before election (back under NovP and under 10, 20, 50, 100 & 200 MAs.

VIX
A clear push down from long term pivot resistance confirms buying in stocks. 11/8 especially clear, collapsing all the way under all pivots! 

XIV
Did fantastic on the low, not breaking major support as almost everything else did. 

USA main indexes

Prior week: "Last week: SPX set broke Q4S1s, Tech set broke Q4Ps, INDU set broke NovS1s but still well above Q4S1, RUT broke YP (!); NYA also 1 day below YP and VTI below Q4S1."

Last week: 4 of 5 USA mains back above all pivots! Amazing! INDU and RUT set leading, above YR1s. SPX and VTI testing. Tech not in a party mood, below is NovP and just a bit above Q4P. 

Sum
Despite the trouble of the 11/4 close with then leader tech breaking Q4P, RUT breaking YP and NYA below YP, markets came back in incredible fashion. From 11/7-9 indexes recovered and cleared pivots. In case you are curious here is a day by day rundown:

11/7 - Tech was again above its QP, IWM & NYA both above YPs
11/8 - 11/8 DIA reclaimed its Q4P with not much status change in the others.
11/9 - 11/9, SPY jumped above Q4P and quickly arrived at YR1, DIA continued above all pivots to near YR1, IWM reclaimed Q4P, VTI reclaimed Q4P.
11/10 - SPY YR1 tag, QQQ NovP rejection but Q4P hold, DIA YR1 tag, IWM YR1 tag, VTI YR1 tag
11/11 - SPY YR1 fade, QQQ Q4P hold, DIA above YR1!, IWM above YR1!, VTI same.

So markets back in bull mode with IWM small caps and DIA industrials looking the best, above YR1s, with QQQ tech in the back seat, not really joining in the Trump festivities. 

Charts
Cash index weekly charts with long term levels only
Daily ETF chart with long term & medium term pivots
Futures "1" continuous contract with pivots only (no S/R) and MAs for clarity of entries
Futures current contract with the works

SPX / SPY / ES1 / ESZ
SPX back to YR1! Fractionally above but within 1 point, and right now this is a test. If above next long term target 2209.
SPY a bit under YR1 as well. 
ES1 shows hold of D200MA on oversold RSI, and back above all pivots 3 days later despite the massive spike in globex 11/8
ESZ similar

NDX / COMPQ / QQQ / NQ1 / NQZ
NDX doesn't look as impressive here, but still holding 2HR1 as support. 
COMPQ better, so that means a few big cap tech are weighing.
QQQ glaringly weak compared to others, under NovP and testing Q4P again.
NQ1 shows entry criteria met 11/7, but 11/9 caution and 11/10 potential reduce
NQZ similar to 1

INDU / DIA / YM1 / YMZ
Stunner by the Dow, back to YR1 and above in 1 bar. 
DIA similar, with 2HR1 resistance to watch at the highs so far
YM1 gaive the chance to buy above all pivots 11/7-8 and early 11/9
YMZ similar

RUT / IWM / RJ1 / RJZ

NYA / VTI
NYA recovered its slight break of YP and rallied back to Q4P.
VTI back above all pivots but again testing YR1. 

Valuation and fundamentals

Thomson Reuters SPX 12 month forward P/E ratio dropped significantly to 16.16 last week, while the SPX price jumped. To do the earnings math, as of 11/4 the implied estimate was 125.69 per share of SPX index, and after 1 week it is 133.94.

I don't know the inner workings of what is producing the numbers, but this is very bullish. If the market can rally to 17x forward SPX again (as it was as recently as early October 2016) then that currently implies a price of 2275. 

These estimates change from week to week, and I'd like to know more about how they are calculated, but I am trying to spot a general trend rather than specific price point. 

*

Citigroup Economic Surprise Index is still below the zero line, which is not positive for the market.

For the last several weeks, especially since the fundamentals were coming in below expectations, I have been saying both valuation and fundamentals have been headwinds for the market. But given the P/E drop I am saying these are mixed. If SPX maintains $130 share earnings (if) then there is plenty of room for the price to move up. But I think rallies will be met with selling if fundamentals are disappointing with rate hike looming. If fundamentals go back positive per the zero line of the Surprise Index, then both will be tailwinds for higher prices. 

BO to DT = ?

Let's think about what moves we have seen from 11/9 thus far:

Interest rates have spiked, bond ETFs (TLT & others) correspondingly tanked, with both moves helping generate big lifts for financials.

Industrials (DIA) led up on the main USA indexes.

Biotechs had a huge relief rally too, with DT not having same fervor to control costs via regulations that H does. 

Yet Tech via QQQ has started to lead down. Maybe this doesn't last forever as Tech is still vital component of economy but this is the post-election move thus far. Just compare the bars on charts posted yesterday in the daily comment with DIA soaring to a new high and QQQ dropping all the way back down to nearly test pre-election lows!

Global stocks are doing about face after months of decent performance. This was an easy spot because if you had any EEM longs coming into 11/9 it was down while other things were up! Several USA indexes held or recovered pivots, but EEM did not and closed below the Q4P. That was enough for me in this environment to cut long and reverse short. I pointed this out in the SPY daily comment and since then EEM has gotten hit hard. Other global stocks are dropping too: FXI China, 2016 leader EWZ Brazil massive decline yesterday, India ETFs weaks, and even RSX getting hit. 

Given likely policies of PEOTUS, I think these trends are more than 2 day affairs.

Given the bling bling predilections of the administration to be, I'll be watching GLD carefully too. It has already held up quite better than TLT on the decline. Let's see what happens. 

 

Interest rates, TLT and XLF

Aside from biotech jump this is the biggest story in markets. In July I was noticing how historically stretched the RSI's were getting on multiple timeframes and did two special posts here on 7/2 which said very stretched but should see a bit higher, and here on 7/9 which said a turn was starting to be possible. On 7/6 in the SPY daily I made the one and only counter-trend short recommendation on this site ever and picked off the level within .02 using pivots.

From 8/15 big picture thoughts: "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." 

Q4 as started very bearish for bonds as written up here, and each safe haven section from mid October on has pointed to bond weakness. Now what?

Let's start with long term charts. I usually refer to TLT, but for even greater long term perspective let's check out TYX. This has been under the 10MA (aqua) since 2014 Q3 until just now. I think the momentum move is to stay above, and the next level to test will be the 20MA at 3.03. While ultimately I think higher, maybe some reaction from this level and round number area. Longer term, if correct on the rally idea, a move to the upper BB and falling 50MA is not out of the question. Currently these are up near 3.8.

Going back to TLT for the monthly chart, it has broken both the 10MA and 20MA with 50MA at 120.91.

Now the weekly long term pivot chart shows a break of 2HP and resistance from there, and straight down to the YP at 124.65.

TLT daily pivots only (no support or resistance) shows the entry 10/3 with rejection of Q4P and OctP, falling MAs, MACD rolling over. The 2HP really never bounced and the move stayed under the falling 20MA (orange) the entire time. TLT is breaking the YP at 124.57 with no attempt to bounce! Now we might see a break and recovery (like IWM & QQQ recently) but let's watch this key level. Below this means below all pivots for bonds! This is the first time since July 2015 we have seen bonds this weak.

Adding in support levels and momentum, either this YP area stabilizes or we could see Q4S3 at 121.89

This huge move in bonds and rates has turned financials into the leader of the market. XLF above Q4P the entire quarter! What else can say that? All USA mains broke at some point. Only EWZ Brazil and SMH/SOXX held up sideways above Q4P as other indexes dropped. On 11/7 XLF was above all pivots. The market gave plenty of time to spot this relative out-performance. 

Other financial indexes may differ a bit. IYF is the ishares version. It too jumped above all pivots on 11/7, but had a fractional break of Q4P 11/2-4. But both have made new highs for 2016 before anything else that I track. Are financials about to take over leadership like tech & biotech in 2011-15, and EWZ and SOXX in 2016? 

Total market view

Review
10/29 Total market view: "Bottom line - SPY & VIX "trouble alert" issued 10/27 via SPY clear rejection of Q4P and VIX move above its Q4P. Consider previous incidences this year: 1/4-6, 1/29-2/2, 6/24, 10/11. 10/11 not much damage before the next alert issued, and 6/24 turned out quick buy 6/27+, but that was not the case on the first two. Until we see lower levels on stock indexes (ie SPY Q4S1) or recovery and end of alarm I think cautious positioning warranted. This means reduction of longs, more cash, perhaps short hedges though as mentioned DIA shorts have been frustrating."

Result was a fair amount of trouble with markets down each day last week and SPX down about 2%. Some indexes dropped considerably more. 

Sum
If you have been keeping up with this site and know that I have been bullish post Brexit, caught *the turn* in bonds on one and only attempt, been saying upside limited on stock indexes since mid August - just to highlight three of many major correct calls  - perhaps you heeded the trouble alert from 10/27 that was emphatically repeated in the last 10/29 Total market view. If so you have avoided this market drawdown and the next question is when to buy or lift hedges. 

Due to the election this is a tricky matter. How you can position depends quite a lot on your role in the market (trader, retail investor, pro), and your risk tolerance. Stocks and ETFs will have the issue of a big gap. If you buy calls into any more VIX spike on Tuesday and then election results go your way, I think the VIX collapse will mean not as much gains as you would like to have. The best way to play this type of event is without question, 24 hour futures. Still I will try to address stocks indexes and ETFs as usual.  

Positioning
Last week: "As long as VIX is signaling trouble I believe it is right to raise cash / hedges until we reach lower levels on stock indexes and/or VIX trouble ends." If you took this advice you watched the markets drop day after day and weren't too bothered either by having more on sidelines or hedged, depending on your type of participation in the market. So now you can either be looking for good setups for things to buy, or a clear signal to take off hedges. 

On 11/2 I mentioned a partial buy for aggressive traders based on VIX small up bar below 2HP and multiple indexes holding levels. In my view that was basically a QQQ & EEM long try since these were sitting on Q4Ps and had rising moving averages to help out. The next day broke levels that were the conditions for the buy, so very simple decision to get out. Now you have quite a lot of cash, or are fully hedged. 

I reviewed criteria on what has given the better entries here. Right now there isn't a lot that looks good. GLD was a maybe on 10/31-11/1, but I certainly didn't mention it at the time. TLT is not meeting conditions for a buy. On stock indexes, USA mains would have to recover pivots (QQQ Q4P, IWM YP) and VIX fall back under 2HP. 

Due to election uncertainty, VIX is unlikely to drop back under its 2HP 20.07 on Monday or Tuesday, and perhaps we will see a move up to its YP at 27.46. If we saw this move (but not a close above) perhaps we will find something to enter. The best buys are days when multiple indexes or safe havens are saying the same thing. Right now they are saying avoid, hedged or short, perhaps excepting some Q1-Q2 buys in EWZ and SOXX, and more recently XLF. 

Bottom line - Trouble alert from 10/27 was quite correct. The conditions to lift that trouble alert will be a VIX rejection of a pivot with clear move below the level. Right now VIX is above its 2HP and not yet at its higher YP. Either we need to see a move below 2HP, or higher to YP and rejection from there. Still I think it is better to be cautious with any long attempts with VIX above 2HP.

I will start sounding more bullish on the market when we see Tech set recover above its Q4P (QQQ 114.83), RUT set recover its YP (IWM 116.23), NYA above its YP (10302), and then SPX above Q4S1, VTI above Q4S1, all with VIX and XIV constructive for risk. Until then, cash on sidelines is quite fine. 

Pivots
USA mains indexes - Trouble across the board, especially with Tech set below Q4P, RUT set below YP, NYA also below YP. The first sign of a real bounce would be ES futures back above Q4S1 at 2085, but until Tech - current USA main index leader - recovers its Q4P and VIX confirms the signal, markets can go lower.

Safe havens - TLT and GLD not impressive here, so safe havens not helping unless you bet on a VIX rise. I prefer to use VIX to guide positioning instead of trying to play the relentlessly sliding VIX related vehicles like UVXY. 

Global and other - It is ugly out there. Other leaders like EEM and FXI broke Q4Ps, and PIN India crashed through its YP with no attempt to bounce. Oil is back under all pivots via current contract and USO (but not yet on CL1). 

Other technicals
Bulls trapped and NDX 2000 high fail is the issue. Maybe it is the election but maybe not - we won't know until later. 

Valuation and fundamentals
In early September, I noted the Citigroup Economic Surprise Index fade and said that added to my "upside limited" perspective. From 9/25 on, I have been saying that these are more headwind than tailwind for the market. At some point a drop may alleviate some valuation concerns, and economic data may change, but currently there is no change - valuation and fundamentals are not helping the market.

Sentiment
The indexes I track saw multiple bullish extremes in August and I wrote them up here. While those extremes have faded, we are just now starting see bearish extremes:

Put-call 10MA at highest level of the year
ISEE historical data oddly not available but several days in a row of very low readings
AAII individuals and NAAIM are lower, but not yet extreme

Timing
November dates (published 10/29)
11/1 - non event, middle of drop
11/18-21 - not sure how this will work out given election

 

Houston, we have a problem

The issue is the current look of monthly and quarterly charts on USA main indexes. A lot can happen with the remaining 2 months of the quarter so let's keep to monthlies. Even this will likely change before the close of the bar on 11/30. But right now, we have a problem.

SPX M
Bulls trapped! Anyone who bought the breakout bar is now scrambling to get out. Now under 2015 monthly close high as well.

NDX M
All time above 2000 high (red line) FAIL.

INDU M
Failed new high since September; breaking well under 2015 monthly close high in first few days of November. 

RUT M
2016 high on 2015 monthly close high and wham from there. 

VTI M
Failed new high since October.