Total market view

Review
11/26 Total market view: "Bottom line - In a momentum move, especially at this time of year, we 'should' see signs of euphoria in the market. We are seeing 1 of 4 readings at extremes but that is not enough. Until more people get crazy bullish, usually best to hold. Even then, with momentum very high, often best to wait instead of trying to avoid a small pullback that quickly comes back. 

I will sound more bearish on the market if: SPX rejects 2HR1 2209, RUT rejects 2HR1 1342 and INDU rejects Q3R2 19185 along with some trouble on VIX or XIV. Even so, until we see sentiment extreme as above I think most likely move is pullback that is bought."

Results
All 3 index levels mentioned above rejected last week, and XIV faded from a major resistance cluster as well. So far mild pullback for most USA indexes.

Sum
Since the election, we have seen an amazing sector rotation and power move up in USA small caps and financials, as other indexes also rallied. Tech and most global indexes have been left out of the party and the battle for 2000 top on NDX continues. RSIs on IWM, XLF and TLT high eye popping levels and some digestion would be the most normal thing. Key question from here is whether this is a mild stock pullback as safe havens continue to crumble, or a more threatening drop with more tech and global index weakness?

Due to pivot status, VIX, momentum, seasonality I am still thinking mostly long here. However, SPY daily comments were more bearish throughout last week and said take gains on leveraged longs Monday, then add hedges Wednesday & Thursday. On Thursday another sentiment measure reached bullish extremes, so that means 2 of 4 that I track. This is an additional point to reduce on the long side or be quicker to hedge. I don't know which way EU will vote but if the market were worried about this we would see EURUSD break down below 2015 lows, and so far that hasn't happened. If it does, then DXY will be higher and INDU could be pressured as well. 

Bottom line - 4 of 5 USA main indexes are above all pivots, VIX is below all pivots; safe havens TLT and GLD are below most pivots (GLD still above  YP). It is right to be mostly long USA indexes while stepping out of the way on leverage for the pullback. Next move to ramp back up longs or protect more recent gains will depend on Tech set Q4P, and what happens with currencies and rates with any political news out over the weekend. 

Positioning
The moves last week were to take gains on the leveraged longs, add some short / hedging trades, and rotate into oil strength. 
40% long USA main index leaders IWM and DIA
30% long sectors XLF and SOXX
10% long RSX
20% long DXY
20% long USO
20% short QQQ
10% short EEM
Total long 120%, total short -30%, long exposure 90%, total exposure 150%

Pivots
USA main indexes - Tech set sitting on Q4P support important for the market. If that breaks other indexes may have deeper pullback. If Tech holds then others like IWM and DIA clear sailing all above DecP without a test. 

Safe havens - VIX saying all clear for stocks, XIV some pause. My interpretation of that along with the index rejections was be long, but back away from leveraged long. TLT and GLD in freefall and not on any pivot support. Given RSI some bounce possible but there is not really and good looking buy here. 

Global - RSX clearly best among FXI, EEM, INDA and EWZ, as it returned above all pivots again on 11/15-17 as others were breaking down.

Currency & commodity - DXY has faded a bit as EURUSD hasn't broken down yet. We'll see. Oil one has choice of pivots on CL1 or USO. Both had significant pivot action 11/30.

Other technicals
NDX battling at the 2000 top. 

Valuation & fundamentals
Valuation more a concern but fundamentals stronger; together a mild positive.

Sentiment
1 out of 4 already in bull extreme territory. I was watching carefully to see if others joined in. No ISEE spikes; put-call lower but not really extreme especially on weekly basis; NAAIM managers jumped so focusing on that:

2006 2nd half to current: top 1.8% percentile
2010+: top 2.2% percentile
2015+ top 4.0% percentile

No matter how we view the data, managers are at a bullish extreme. This data was available Thursday and charts were already suggesting to reduce on the long side. Based on this one could be a bit less long let's say 70-80% although 20% of longs right now on oil not 100% correlated to USA stocks. 

Timing
December dates (published 11/26)
12/1-2 strong - 11/30 price high for many USA mains, at some time 12/1-2 might be pullback low. If stocks rebound on Monday as Tech holds Q4P a lot would line up bullish
12/7-8 maybe
12/19
12/28

 

Is tech toast?

I live in San Francisco. A lot of west coast types didn't vote for DT and don't like him too much. There are lots of people who have made significant amounts of money this decade holding amounts of tech company stock - many of these people are employees, founders, board members, etc. Obviously many of these companies are on the west coast. Some of these people have homes with tremendous mortgages. So if you worked at FB, AAPL, GOOGL, etc etc etc and the list goes on, and you have significant 6 or 7 figures in your company or other tech stocks, and also sitting on mortgage on a 1-3M house, what would you do?

OK, hold stocks, everything will be fine. 
Um, if markets crash then we could literally be homeless so let's raise some cash.

Or maybe this is totally bogus and it is all about AAPL and China threats from DT. Now matter how you slice it tech is weak since election so let's look at charts. 

NDX Q
What is really going on here is a struggle at the 2000 high 4816. Grey lines are 2015 high and quarterly close high. Although back under 2000 top, the grey lines still may act as support. 

NDX M
In this monthly chart I have added a grey line at the 2015 monthly close high which has also been near exact support on 9/2016 and 11/2016 bars. However, we are again seeing selling from the red line 2000 top. 

NDX W
Same lines here. Now look how many weeks have lifted above the 2000 top only to fail again. I count 4 up bars above the level, and now this is the 3rd time since the 2nd half there has been selling from 4816.

Here is the usual pivot chart. NDX is sitting on Q4P and below that 2HR1 which 'should be' support. If it failes then it it is the 3rd break this quarter although #2 on 11/14 was short lived and held both 2HR1 and NovS2 on the same day so I'm even willing to bracket that as a break. This level will be a major tell going forward. 

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Positioning

This is a new series and we'll see how much time there is to continue. 

Last week's Sum
allocation: max long risk assets
USA mains: IWM, DIA
sectors: XLF, SMH
global: already reduced (funny but true, RSX best among EEM, FXI, INDA and EWZ from 11/15 on); EFA & EEM short candidates, INDA weakest but too late
currency & commodity: DXY long, oil neutral

Today I am going to introduce something that will hopefully make it a bit easier. I am going to use a numerical scale using a semi hedge fund strategy ie moderate leverage and some shorts & hedges.

1 unit = 10%
10 = 100% long
15 = 150% long

Max directional exposure 150% long, 50% short. 
Max total exposure 200%

As of last week I said max long (see tag then post for entries).

That would have looked like this:
5 IWM, 3 DIA
3 XLF, 1 SMH
1 RSX
2 DXY

Or to put it another way, 80% long USA main leaders, additional 40% long USA sector leaders, small best looking global ETF, 2 long currency. 

Monday 11/28 said from max leveraged long to 'long' so how to reduce 5 units? Some of this depends on entry but I'm assuming most buys 11/9-11. 3 IWM, 1 DIA, 1 XLF would mean total remaining 2 IWM, 2 DIA, 2 XLF, 1 SMH, 1 RSX, 2 DXY.

Wednesday suggested adding some hedges if bearish open Thursday. To hedge out USA positions QQQ weaker below DecP (that break was during 1st hour, not on open). Also EEM rejection of YP and falling 20MA.

I didn't say anything about oil last week other than neutral as of last weeks blog post, although CL1 held YP and jumped back above all pivots 11/30 so if you wanted to be aggressive could have added back 2 units long on that. 

So by end of week something like:
2 IWM, 2 DIA
2 XLF, 1 SMH
1 RSX
2 DXY
2 USO oil
2 QQQ shorts, valid below DecP
1 EEM shorts, valid below YP
Total long = 120%, total short -30%, long exposure 90%, total exposure 150%

The question in the coming week will be to adjust back more long, or add hedges and be more short. EU politics affecting currency and indexes so that will impact Dollar and rates so we'll see what happens. 

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Safe havens

Sum
TLT and GLD in freefall in Q4. Trends are still down below sharply falling moving averages on the daily charts, but selling slowing and a bounce would not be a surprising development. VIX saying all clear below Q4P but I cannot ignore XIV fade from major resistance cluster either. I weight VIX here 2/3 to 1/3 XIV. 

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 showed clear resistance at 2HP then plunge from there. Not near long term support but RSI 29.8 and tails on candles increases chance of bounce.
Daily chart under Q4S3 and not yet on any pivot support. 
Daily P4MA chart shows 2 days above 10MA and immediately back down. 20MA hasn't been touched since 10/4. 

GLD
Weekly chart showing 2HS1 could be support. GLD better than TLT here since still above YP as well. Any rally against sharply falling MAs.

GDX
No pivot entry on long side here, below DecP and 2HP and falling MAs. Short was tougher setup unless in from early October.

VIX
Key point is under Q4P. As long as that holds as resistance, stock bulls have the ball. 

XIV
Resistance bang on YR1 / 2HR2 / Q4R1 combo increases chances of trading high. 

USA main indexes

Prior week: "Last week: "SPX set at 2HR1 / Q4R1 combo; Tech set above all pivots; INDU above 2HR1; RUT at 2HR1; VTI above HR1 and Q4R1."

Last week: SPX fade from 2HR1 / Q4R1 combo; Tech below DecP; INDU above 2HR1 but tagged Q4R2 and paused; RUT fade from 2HR1; VTI fade from 2HR1 / Q4R1 combo.

Sum
Several levels that were testing or slightly exceeded in the prior week acted as clear resistance last week. This is somewhat bearish. But 4 / 5 USA mains above all pivots and often the first drop from resistance in a strong trend comes back. While it is possible that USA mains test DecPs, rising moving averages and prior 2016 high areas may also act as support. Key tell will be Tech set Q4P. 

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

SPX / SPY / ESZ / ES1
SPX weekly chart looks more like a top.
SPY daily shows resistance at 2HR1 / Q4R1 combo, with pivot support down near 217.
Futures charts show nice moving averages with 2 day break of 10MA with a sharply rising 20MA. So far RSI fade from 70 not much damage. In addition, market is testing prior 2016 high area. 
 

NDX / COMPQ / QQQ / NQZ / NQ1
NDX fell shy of target zone; COMPQ bang on YR1. QQQ slight break of NovP on 11/30 and plunge through DecP on the first trading day. Testing Q4P again, key tell for market going forward.

INDU / COMP / DIA / YMZ / YM1
Index charts doing fine, above resistance. DIA mild pause at Q4R2 but not threatening yet. Unlike SPY, DIA all above a rising 10MA and much more overbought on the way up.

RUT / IWM / RJZ / RJ1
Fade from 2HR2 and Q4R2. Nicely rising 20MA underneath as support. 

NYA / VTI
NYA stuck at 2015 highs but not on pivot resistance. VTI fade from 2HR1 / Q4R1 combo and like the others above sharply rising 20MA. 

Valuation and fundamentals

Thomson Reuters SPX 12 month forward P/E now 16.99. I am persisting in this project even though there is a curve fitting element to the data I don't understand. 

Earnings took a big hit this week, from 131.75 back down to 129.00. Right at 17x resistance which seemed to give more room to the market last week, and now may help limit upside. Ultimately I'd like to see euphoria highs near 18x forward earnings in 2017-18.

*

No ambiguity in Citigroup Economic Surprise Index with a nice move back into decently positive territory. 

 

Monthly charts

Close of the bar - quite a difference from the first few days of November.

Sum
Most USA main indexes look great; global stocks either way; safe havens TLT and GLD look terrible. Generally bullish for risk assets though DXY strength a concern and tech weakness a notable exception. 

SPX M
Looks to be a hugely successful retest of prior high area when measured by both the price high 2134 and monthly close high of 2107 shown by the grey lines, as well as rising 10MA and near test of 20MA. RSI not yet overbought and the December Bollinger band will be noticeably higher. Everything bullish on this chart. 

NDX M
Different story here with NDX struggling to close above the 2000 top of 4816 shown at the red line. Not entirely bearish by holding 2015 high and monthly close high (grey lines) as support. 

INDU M
What a phenomenal move. If you only paid attention to the price high, this chart looked bearish for 2-3 months. If you allowed the monthly close high to act as support shown by the lower of two grey lines, you stayed much more bullish. Successful retest of prior high, hold of rising 10AM and near test of 20MA, close outside the monthly BB, RSI getting up there but room to move up - just nothing wrong with this chart. 

RUT M
Quickly caught up with huge hold of 10MA and 20MA and blast through to new highs. 

It is rather abrupt of me to condense global stock indexes to one ETF but here goes on ACWI. This is indeterminate - nice hold of rising 50MA, rising 10MA and flat 20MA - however, lower close than last up bar is vulnerable. We'll see what happens. 

TLT M
Whoa - close under M50MA the first since 4/2014. It looks easy now but calling possible top in early July was much harder. At this point I'd say test of rising 100MA has to happen in next 7 months. 

GLD M
This chart looks totally terrible. 

DXY M
I've been calling for move well above 100 for weeks now, and it has arrived. Interesting to see how political events will impact DXY & EURUSD in near future. 

USO M
Hard to get too excited despite massive rally. 2nd time above 10MA and lots of upside potential; still this chart looks like struggle to upside. 

Global stocks

Global stocks have been great sources of trading and investment opportunities. In 2015 while USA indexes were sideways China had a terrific rally and then huge collapse. These moves were trade-able on ETFs (thin volume but there). EEM had a huge drop in the 2nd half of 2015, and Brazil has led most of 2016 in percentage return among country / index / sector ETFs.

There are a lot of possibilities but first let's divide between developed and emerging. Developed often means Europe with a focus on Germany and then Japan; with key benchmark indexes of DAX and NKY. If you are an American retail investor, then the choice is EWG & EWJ versus hedged versions. I tend to not mention these so much even though I have at other times had a significant focus on Japan - the main reason is these tend to be correlated with USA indexes and moves are more a matter of magnitude than direction and timing. Mostly, correlated not always. Regardless, if you are playing anything outside the USA, it is best to emphasize pivots and technicals on what you actually own versus an index. 

I'm sure there are people out there who want to include all the available country ETFs and this could be a worthwhile exercise, but I think quite a lot moves together anyway and I'd rather stick to the main vehicles. 

Moving onto emerging markets the big ones I track are:

FXI - China via Hong Kong
EEM - popular emerging index
INDA - India
RSX - Russia
EWZ - Brazil
ACWI - Global benchmark, kind of like NYA functions for USA indexes
Shanghai Comp via XGY0 on trading view, close enough, and tradeable through ETFs

We could also get into China tech cos and corresponding ETFs because they are significant in market cap but let's save that for another day. 

The main point is if we are positioning and selecting 1-2 USA mains, 1-2 USA sectors, 1-2 global indexes, 1-2 currency commodity positions, then a selected 0-3 as shorts then we are at about 10 different vehicles maximum. I'm sure most people have more but to me this right for an active trading account. 

For each global vehicle - weekly technical chart, weekly long term pivot chart, and daily pivot chart. 

FXI
Monthly chart at several MAs clustered, so an interesting area to watch: 20MA 37.52, 50MA 37.92, 100MA 37.85.

FXI W
Long term pivots show short cover / speculative buy chance on the February lows, then partial long term buy in 2nd half above the 2HP. 

FXI D
Monety was made in July and August; chasing in September, the 3rd month above the monthly pivot, got you in at highs. Since the election it sold off but now come back to about even. 

EEM M
Despite the percentage strength of most of 2016, thi sis under falling MAs on the monthly chart (all falling slope except 10MA). 20MA currently 35.40 interesting to watch as we head into the monthly close. 

EEM W
Responding very well to pivots with 2014 high, 2015 high, and the 2015 and 2016 lows all on long term levels or near enough. 2HP in 2016 has acted as support and EEM was able to clear the YP and then hold. Post election break but coming back - key level to watch here at 35.45.

EEM D
And there is the YP on the daily chart with a falling 20MA right on top. That said, rising D200 has basically held after trading only 3 days below. No signal long or short here, interesting level to watch. If anything I'd try shorting against the YP since the 20MA and 400MA are both falling, but with risk health and safe havens weak I would not be surprised at attempt to clear. 

INDA M
Modi's cash exchange not working so well, but maybe this is a buy chance. 

INDA W
Getting out of the way of YP rejection saved some pain here. Back above 2HP would be a positive though. 

INDA D
Even if 2HP clears, most daily moving averages against a rally except recently stabilizing 10MA. 

RSX M
Crashed with oil and has had decent rally enough off lows, but not too zippy in the second half. 

RSX W
Attempting to stay above YR1. 

RSX D
Issue with shorting the YR1 is still above all pivots and all rising MAs. Considering other global indexes, RSX could be long 11/15 and now seeing what happens. 

EWZ M
Incredible percentage rally but stopped running into falling 50MA (also weekly 200MA). 

EWZ W
First sign of strength in early 2016 was a bottom above long term support, where everything else was testing or breaking YS1s. Currently trying to stay above YR1 after breaking 2HR1. 

EWZ D
Note bar of election under NovP where it has been above, and below 2 MAs. 

Shanghai Comp
Quietly holding M50MA along with M100, back above M10 and testing M20 at 3470.
 

SC W
Partial buy possible from 10/10 week above 2HP for the 2nd time. 

SC D
Pivots and MAs agreed in August that failed, but next time has been a very nice trending move. But with RSI mostly overbought from 11/11, no new entries up here. 

Total market view

Review
11/20 Total market view: "Risk on has been the clear choice from 11/9 on. VIX gave screaming buy as all USA main indexes recovered or cleared pivots, as other safe havens TLT and GLD collapsed through long term support 11/10-11. But a move from near NovS2 to NovR2 on SPY in about two weeks is quite a lot, and the most likely thing from there is digestion and consolidation. With multiple indexes on monthly levels, sentiment getting toppy and the timing window 11/18-21 we may see some trading high here (trading meaning a turn that holds for 1-4 weeks). At the same time, I don't think this is a major top which I would define as definitive for the quarter or beyond. 

Bottom line - If you have caught the move in the current leaders of USA small caps and financials, then I think likely best to hold those as they are likely to benefit from year end positioning. Given monthly levels, sentiment and timing, I will look to reduce or hedge other index longs if we see more weakness early this week."

Result
Not quite bullish enough! No weakness from 11/21 and best move has been to simply hold.

Sum
If you bought into the rally & breakouts after 11/9-15+, with minimal or no exposure to TLT/GLD, and shifted out of global leaders into financials and USA small caps due to interest rates and dollar strength, then you are doing great. From here the question is how long to hold, or take gains. In a power move such as this, patience usually best - but anything could happen, especially if we see more signs of euphoria in the coming week. 

Bottom line - In a momentum move, especially at this time of year, we 'should' see signs of euphoria in the market. We are seeing 1 of 4 readings at extremes but that is not enough. Until more people get crazy bullish, usually best to hold. Even then, with momentum very high, often best to wait instead of trying to avoid a small pullback that quickly comes back. 

I will sound more bearish on the market if: SPX rejects 2HR1 2209, RUT rejects 2HR1 1342 and INDU rejects Q3R2 19185 along with some trouble on VIX or XIV. Even so, until we see sentiment extreme as above I think most likely move is pullback that is bought. Even if we see some shuffle around these levels - which would be normal - with moving averages rising with impressive slopes one could err on the side of holding and then use DecPs as a guide from there. 

Positioning
New dedicated post. 

Pivots
USA mains - From here levels to watch are SPX set 2HR1 / Q4R1 combo, RUT set 2HR1 / Q4R1, and INDU Q4R2. 

Safe havens - TLT chart trying to stabilize for a bounce, but under all pivots means avoid. The only reason to possibly try a TLT long here is a hedge against financial longs. 

Global and other - Interesting to see if some of the sectors that broke Q4Ps after the election continue to recover, namely FXI and EEM. INDA is having macro related issues and had the biggest drop of risk assets. 

Currency & commodity - EURUSD at the bottom of an 18 month range, but hasn't broken down yet. To watch. Oil neutral here; recently strong but gave back a long of gains. 

Other technicals
Leaders like IWM, DIA and XLF are pushing outside Bollinger bands on monthly and weekly charts. This is very bullish and sets stage to hold for divergence. More on this soon with a review of monthly charts when bars close. 

Valuation and fundamentals
Currently a mild positive as the Citigroup Economic Surprise Index back above zero and SPX forward P/E not pushing 17x according to recent data. 

Sentiment
AAII is at a bull extreme now, so the question will be if others follow. NAAIM toppy but not extreme, especially considering seasonality; put-call not really extreme, especially on weekly view; ISEE no daily spikes yet. 

Timing (proprietary timing model)
November dates (published 10/29)
11/1 - non event, middle of drop (major low 11/4 not close enough) 
11/18-21 - thought this might be a turn but another non-event

December dates
12/1-2 strong
12/7-8 maybe
12/19
12/28
 

Positioning

I'm going to experiment with a new series (and tag). I've recently been including positioning thoughts in Total market view, but this being the meat of the matter deserves its own post.

Keep in mind that I am trying to make this work applicable to a variety of market participants: hedge funds with ability to use leverage, have longs, shorts, and hedges; institutional portfolio or wealth managers for whom adjustment means overweight or underweight various asset classes or sectors; and individuals playing the market on both a longer term and medium term basis. The only thing I am not really addressing here is short term swing trading and/or day trading; weekly and daily pivots work, just action is too fast for any blog comments. 

I tend to have mostly long emphasis because it is usually easier to buy what is going up, than trying to catch what is going down. Even if I think TLT is dropping, then it will usually be easier to buy more financials than try to short bonds. 

From 10/27 caution alert, I suggested to raise cash or hedges, ie, have less exposure in the market.

When alert was lifted 11/7, current leaders were: QQQ among USA mains; SMH among sectors from much earlier buys, and recently XLF; globally, EWZ from much earlier buys, and more recently EEM, and DXY (which as a currency can be played in a variety of ways). 

After 11/9, however, QQQ, EWZ and EEM quickly dropped off the strongest / winner list, replaced by IWM and DIA. XLF and DXY worked out great. SMH maintained. 

The other key point is that from the start of Q4 I have been recommending minimal exposure to safe havens TLT and GLD; this view has been justified with the once mighty TLT below all pivots as of 11/10. Also, you will need to factor in this analysis for your own position list. If you have a lot of dividend stocks, then they also might have benefited from adjustment to underweight in a rising interest rate environment. 

One aspect that will be entirely up to you is what "long", "somewhat long", or "very long" means, and how quickly you can adjust. A hedge fund running 100MM could be 300% long on leverage and change back to 0% long with futures hedges in a few minutes during the session, and even take significant action after hours. An institution might take a week to change allocation to an asset class in the new quarter. An individual in a non margin account might be constrained to use settled cash, but if you are nifty and use some of the leveraged ETFs out there there are ways of replicating some hedge fund strategies. 

Personally I would rather have 2-5 best positions, take them in size that matters and execute well than having 50 things that all move together anyway.

Regarding flexibility: If Stanley Druckenmiller can sell all his gold in one day, then it is really only the largest players or those confined by certain benchmark adhering rules who cannot change positioning with relative ease.  

11/9-11 playbook
Out EEM & EWZ
Hold or add XLF
Reduce QQQ, add IWM, some DIA
Hold SMH
Hold DXY long or related FXE short

11/15-17+
SPY cleared YR1, VIX Q4P rejection, QQQ held Q4P, then back above all pivots, VTI cleared YR1, all with safe havens crumbling = max long.

11/21+
Alert for trading turn to potentially take some gains but markets making it easy and kept on going up with no signs of euphoria.

11/28+ 
The decision here is to take any gains, hedge, or simply hold. If you are decently long you might want to consider previous editions of TPP top checklist. If we see several of these check off it is time for action. If not maybe better to do nothing. In this environment and momentum, a one day drop could immediately come back the next day. 

A hedge is something correlated to the underlying asset that allows us to minimize downside while holding longs. A short is an uncorrelated short trade. Either of these can be used to reduce long exposure. Some hedges involve time decay like options or VIX related strategies. 

If we start seeing ISEE spikes (125+) that maintain all day into the close (they can fade, ie start 175 then drop down to 100 by the close) then I'll be more willing to reduce late longs or hedge. Given slope of 10MAs on daily charts though, at this point looks best to let trends play out, ie, do nothing. If you are not max long by 11/17 with QQQ recovering above all pivots and VTI above YR1, joining SPY, DIA and IWM that had all cleared from 11/11 on, then it is too late to be chasing up here. 

Sum
allocation: max long risk assets
USA mains: IWM, DIA
sectors: XLF, SMH
global: already reduced (funny but true, RSX best among EEM, FXI, INDA and EWZ from 11/15 on); EFA & EEM short candidates, INDA weakest but too late
currency & commodity: DXY long, oil neutral

 

 


 

 

Safe havens

Sum
Safe havens have been in freefall since 11/9 with all confirming risk on. VIX and VIX continuous futures below all pivots from 11/9, and XIV above; TLT below all pivots from 11/10 on; GLD below 2HP (but still well above YP) from 11/11. 

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 2 weeks of sideways after big drop; setting stage for bounce. Key point: TLT under all pivots from 11/10 has confirmed risk on. 
Daily chart weak below Q4S3 yet holding NovS3 on closing basis.
Daily pivot only chart shows ideal short 10/3 area with rejection of Q4P and OctP, falling MAs and MACD - from 10/4. 
 

GLD
Freefall after election. Just a few days weak bounce attempt at D400 (roughly equivalent to monthly 20MA) and fail. Maybe we will see YP test. 

GDX
Holding on to D400 but below 3/4 pivots from 11/11 on. 

VIX
Best buy bars 1/11 & 1/18, 2/15, 6/27, 9/12 and 11/7. Simple indicator giving 6 weeks of the year to take serious buying action is good enough for me. 
If you went fully long with VIX below all pivots on 11/9, you have done well. If you added 11/11-15 with VIX Q4P rejection then you have done even better. 

XIV
XIV in resistance area of YR1 / Q4R1 but so far no damage. 

VI1
VI1 also confirming stock buy 11/9 with massive rejection of YP / 2HP area and finishing below all pivots; continued below all pivots since. 

USA main indexes

Prior week: "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."

Last week: "SPX set at 2HR1 / Q4R1 combo; Tech set above all pivots; INDU above 2HR1; RUT at 2HR1; VTI above HR1 and Q4R1.

Sum
TrumpIt party continues with all USA indexes above all pivots and no sign of damage from resistance. From here levels to watch are SPX set 2HR1 / Q4R1 combo and RUT set 2HR1 / Q4R1.

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

SPX / SPY / ESZ / ES1
SPX from YR1 to next long term target 2HR1 in 2 weeks. Impressive - let's see what happens at this area. 
SPY in resistance area of 2HR1, Q3R1 and NovR3. Blast through, pause, drop and come-back or rejection? 
ESZ showing 11/9 buy with pivot recovery, above all MAs and day of MACD+
ES1 showing resistance area like SPY; also note entirely above nicely rising 10MA.

NDX / COMPQ / QQQ / NQZ / NQ1
NDX looks like it should see YR1; COMPQ already there.
QQQ and the others better to be above all pivots, but still under October highs and nowhere near long term resistance. 

INDU / DIA / YMZ / YM1
INDU looking great.
DIA heading towards Q4R1.
Measured on daily close, YM gave a buy on 11/7 and has not looked back. 
YM1 the only chart on resistance already at Q3R1 here. 
 

RUT / IWM / RJZ / RJ1
RUT & IWM to 2HR1, resistance area to watch especially with daily 14 period RSI up to 80 (!). I will update futures charts soon.

NYA / VTI
NYA doing fine after recovering status of above all pivots from 11/9. 
VTI even more bullish, above all pivots from 11/9 on and YR1 clear as of 11/17. Blasting through 2HR1 and Q3R1 without any red at all. 

Valuation and fundamentals

Thomson Reuters reporting SPX forward P/E of 16.78 implies earnings estimates of $131.75. Bullish for P/E to increase on a bit as SPX has tacked on another 30ish points to the rally. Current 17x resistance is 2240.

Citigroup Economic Surprise Index back into positive territory helping the bullish case. 

If you check the tag on this blog post you will see that for several weeks I called both headwinds, two weeks ago upgraded to mixed, and last week said mild positive. I will continue to say mild positive with P/E below 17x and fundamentals surprising to upside by remaining on the positive side of the zero line. 

Thoughts on leaders

What are market leaders? There are several ways to define this concept. 

It could refer to pure percentage return over a certain period: day, week, month, quarter, year.

It could refer to position relative to previous highs and lows. 

Or it could refer to position relative to pivots.

Of course when I refer to leaders I am usually referring to #3 involving pivots, but let's think about things a bit. 

EEM was a percentage leader over USA indexes for much of 2016 YTD. From 12/31 to 9/30 (Q3 end), EEM was up 16% vs SPY 6%. Since then however, EEM has dropped and SPY rallied, so current YTD performance figures are EEM +9.5% vs SPY 8.5%. EEM still ahead, but severely under-performing from 11/9 on.

If we think about relative highs and lows, though, EEM was nowhere near a leader when we look at longer term charts. Its all time high was 2007, and even still well under its 2015 high. Often what has been down the most will have a large percentage move up off lows, yet still can be challenging to buy and hold long term.

Another example is NDX. From 2013, SPX had made new all time highs yet NDX had not; but NDX has been the better thing to own among main USA indexes 2011-15 in terms of percentage return. 

So I find percentage return over a certain period and status of new highs both somewhat lacking. What I usually mean by "leader" is from The Pivotal Perspective - an asset class that holds pivots when others break and recovers pivots before others, or clears resistance before others. This may not mean leading by percent and it may not have direct relation to highs and lows. We could also apply this concept to moving averages on various time-frames as well. 

A few examples that worked well this year:

TLT, early January. When stock index pivots were breaking everywhere I looked, it was not hard to find something above pivots - TLT. As of 1/6, TLT had jumped above 1HP, Q1P and JanP where almost every stock index had broken multiple pivots; in fact, as of 1/6 nearly everything was below all pivots. On 1/7 NDX caved below its YP too, further confirming risk off and safe havens on. TLT was one of the best things to own through July 2016, 6 months from the initial entry. 

GLD, late January. Similar logic as TLT. As stock indexes were below pivots or near major support, GLD was above 1HP, Q1P and JanP for the 2nd time as of 1/25. 

INDU, 2/11 and 6/27. In both cases, INDU held yearly support as others, even SPX and NDX, broke slightly. This is why I emphasized the Dow on the first buys, as well as global stocks which had led on recovering monthly pivots too like EWZ, RSX and EEM.

EWZ, February and March (and later too). EWZ was mostly above its February pivot, moving below only 2 trading days that month, when nearly every other index was below on FebS1s. It was one of the first to recover a quarterly pivot on 3/3 as well.

SMH / SOXX. Along with the Dow, when looking for strength to buy, I noticed that both semi-conductor ETFs recovered a long term pivot before anything else I saw on 3/1. This was the first time I noticed leadership on SMH / SOXX, which has led at other points as well. 

XLF. As all USA mains were below Q4Ps in October, this caught attention by remaining above. 

All these were noted and caught in real time on the blog and/or SPY daily comments. But a couple others were tougher to catch and only possible with a more nuanced, synthetic approach. 

QQQ from July. QQQ broke its YP on 6/27 and still below Q2P on 6/28; and was even under D200 until 6/30+. So it did not hold when others did, and did not recover pivots sooner than others. Yet from there it turned into the next USA main index leader. How to catch that? Safe havens were toppy but only started coming down after 7/6-8. This is somewhat hindsight exercise, but the tell was two small down bars on the QQQ quarterly chart. This meant tech had, over 6 months, made very mild pullback while maintaining long term uptrends. The big institutional players saw that and piled in, especially as the growth theme returned to markets and safe havens continued lower. 

IWM from 11/9 on. IWM went from YR1 all the way down to YP and even broke its YP 11/2-4. Yet it raced back and was first conclusively above YR1 on 11/11, with DIA fractionally above YR1 that day as well. SPY followed above YR1 on 11/15. Yet SPY hadn't come close to any long term weakness, so how to shift over to IWM as a choice for longs from 11/9 on? Both SPY and IWM recovered all pivots on 11/9 but selecting IWM has made huge difference in gains. IWM did make new 2016 highs before SPY; SPY new yearly high on 11/11 (same day as pivot move), with SPY not catching up in that regard until 11/21. 

In addition to anticipated policies of Trump, the other tell here is $USD which has also made a huge rally from 11/9 on. From the first day that $DXY closed above 100 on 11/15, IWM is up a further 3.4% vs SPY paltry 1.4% as I type. Factoring in DXY strength from October on could have meant less emphasis on global stocks and globally influenced indexes. This is not the first time that IWM has led USA with a stronger USD. 

But if you didn't jump in immediately, then IWM was clearly above YR1, and making new 2016 highs, and leading by % gains after election (along with financials) from 11/11 and the better choice for any later longs.

Bottom line here is we are search of next leaders. These are easier to buy and hold and will usually give the best gains until there is a change in leadership. Often what holds up best in market drop is the next leader, like XLF recently. Yet sometimes a new quarter or new macro condition can mean new leadership, like IWM. Ultimately we want to do this:

Always consider what is holding pivots or recovering pivots first
Keep some eye on percentage return from a certain period
Keep some eye on relative highs and lows
Consider longer term charts, monthy and quarterly, for the best trends
Consider big picture macro factors, such as interest rates, $USD, and larger themes of growth vs value, developed vs emerging, commodity impact, etc. 

 

 

 

 

DB vs XLF, 1 month in

About 1 month ago a work colleague asked whether I thought DB was a good buy, and answered her with this post. 

At the time I said that I liked financials in a rising rate environment but I would go with the market leader XLF instead of DB. What has played out since then?

Total return, 10/27 close to 11/23 close
DB: 14.49 to 15.79, +9.0%
XLF: 19.86 to 22.38, +12.7%

Drawdown
DB 10/28 high to 11/4 low, 14.74 to 13.32, -9.6%; if entered 10/27 close, then still -8.1% on capital invested. Yikes!

XLF 10/27 high to 11/4 low, 19.95 to 19.40, -2.8%; if measuring from 10/27 close, then -2.3%.

More gain with a lot less pain on XLF! 

The smaller drop is hugely important psychologically speaking if you have a position that matters in size or leveraged ie hedge fund trading. For example, considering interest rates, one could make a justification to have financials be extreme overweight in a portfolio, even 50% in an individually managed IRA at this point. Why not? From 2011-15 all you really needed to own was biotech and tech. Thus far from the election, all you need is financials and USA small caps. But if you enter positions that drop -9% in a few days, it is extremely difficult to go big.

There are many ways to win in this game (and even more ways to lose), but the way I saw it happen at a fund that ran ~75MM and produced +100% return in one of two funds in 2013 was to go big on leaders and hold. This doesn't mean piling on after that fact - which is a recipe for disaster. It means catching the leaders in an early stage and playing that move as large as one can take. Then one can adjust the portfolio though rough patches in the futures market. If one has read my posts for a while, you will see this view underlying most of the strategy recommendations. Buy what is going up, instead of trying to buy what has been down the most or shorting tops. When the market is making a real long term trend change, like bonds and gold in January 2016, or Brazil EWZ in February 2016, pivots will make that very obvious. 

 

Larger view, refined

Per the recent Larger view post, I think markets are in a W5 euphoria stage that will be the final portion of the bull market that began in 2009. It would not matter to me who is president. This is based on the structure of the movement from 2009 on SPX and other main indexes. As it turns out this structure is matching the theory so well - first move strong rally, resistance, acceptance for the longest and strongest portion, doubt, and finally euphoria that is so evident to me on quarterly and monthly charts. 

There are more bullish perspectives - some say the bull market really began in 2013 with the SPX breakout above the 2007 high. By this count, the bull is only yet 3 and has many more years to run. Regardless, if all USA main indexes are above yearly and half-year pivots I will still be bullish. And my own ideal high zone has 6 to 16 months yet to play out. 

Yet if we are in a W5, how might this unfold? 

The most bullish fashion would be an "ideal" 5 wave pattern which means W1 up, W2 down, W3 that subdivides into 5, W4 down, W5 up for the top. Even that may have some range bound distribution period before and ABC down becomes evident. This would bring the market towards the higher price and longer time duration targets and would look something like this on a weekly chart.

As with fractals, similar patterns repeat so it is completely philosophically consistent to see W5 on a monthly timeframe that appears to be one larger move play out in a 5 wave pattern on a weekly timeframe where the divisions are more evident. 

Or a less strong pattern would have W3 of a less duration and power but still sub-divide and look something like an ending diagonal. This would still take the  market towards the medium price and time targets above 2300 near 10/2017, like this:

A weaker pattern could stop anywhere in the 127% to 161% retracement targets of the last move, so 2225 to 2335, and make some other pattern like head and shoulders, double top, lower high, before rolling over. But I am not really an expert on patterns so all this FWIW. 

There is a lot of optimism right now on what Trump is going to do for companies and Wall Street. There was quite a lot of pessimism when Obama began and it seems like the total opposite. But who knows, maybe the market makes a major top in March or April of 2017 and does not look back for many years :)

Larger view

On March 19, I wrote my first Elliott wave post calling for ideal SPX high to occur at "2250-2500 Q2 2017 to Q2 2018." This was valid as long as INDU stayed above its YP, which is has every single trading day since then. 

Here is the chart from that post. No rewind on data feed! SPX close 2049.58, let's say 2050. 

Here we are now, let's say 2200 (7.3% higher).

The larger view is that I keep to this idea. The market is making all the moves it should - after an extended (W3) advance, when all agreed the world was bullish, the market consolidated, created doubt, and chopped people up for 18 months in a textbook W4 pullback.

Now we are seeing W5 euphoria. The Great Rotation out of bonds into stocks is finally here. At long last the banks are joining the party, QE is over, ZIRP is over and the market doesn't care. How long does this TrumpIt bull last is the key larger view question. But I don't mean to sound an immanent alarm. Monthly charts on the main USA indexes are massively bullish here and path of least resistance is higher - even if the market starts to stall which would be totally normal after an amazing two week run. 

Actually, we can do the E-wave exercise across the USA main indexes and calculate 61-100% W1=W5 targets in price and time. The more that line up the better. We might see the stronger RUT do 100% and INDU do 61% or something like that. I will still use the pivots for fine tuning. 

SPX 61% price = 2240, 78% = 2360, 100% = 2510
SPX 61% time = 6/2017, 78% = 10/2017, 100% = 4/2018

INDU 61% price = 19460, 78% = 20560, 100% = 21965
INDU 61% time = 5/2017, 78% = 9/2017, 100% = 3/2018

NDX 61% price = 4750, 78% = 4985, 100% = 5285
NDX 61% time = 6/2017, 78% = 10/2017, 100% = 4/2018* (using 3/2009 anchor)

RUT 61% price = 1265, 78% = 1355, 100% = 1465
RUT 61% time = 6/2017, 78% = 10/2017, 100% = 4/2018

VTI 61% price = 115, 78% = 121.25, 100% = 129.50
VTI 61% time = 6/2017, 78% = 10/2017, 100% = 4/2018

Note NDX and RUT have already exceeded the 61% area targets. 

 

Total market view

Review
11/13 Total market view: "Sum - 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. 

".. But after a big move like we just had, the most likely thing is some digestion and consolidation."

"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."

Result
USA main indexes continued to add to advances, thought most in slower fashion. There was not much of a pullback as two indexes paused at YR1 on 11/14 then rallied above on 11/15.

Sum
Risk on has been the clear choice from 11/9 on. VIX gave screaming buy as all USA main indexes recovered or cleared pivots, as other safe havens TLT and GLD collapsed through long term support 11/10-11. 

But a move from near NovS2 to NovR2 on SPY in about two weeks is quite a lot, and the most likely thing from there is digestion and consolidation. With multiple indexes on monthly levels, sentiment getting toppy and the timing window 11/18-21 we may see some trading high here (trading meaning a turn that holds for 1-4 weeks). At the same time, I don't think this is a major top which I would define as definitive for the quarter or beyond. 

Positioning (this may become a separate post in near future)
The key factor for gains 11/9+ was seeing that previous second half leadership of technology and global stocks were not participating in the TrumpIt move, and that financials, INDU and USA small caps (IWM) were outperforming. If you cut QQQ and bought financials even on 11/9 (The Pivotal Perspective highlighted XLF and IYF as two of the best looking entries before the jump) then you are doing quite well. At the same time cutting the notable losers EEM, FXI, INDA, even 2016 favorite EWZ, has avoided more losses or lost gains. 

If you have gains, the question is whether to hold without adjustment, hedge, or take money off the table and look to re-enter. I wrote this week that I would start to mention more short setups, anticipating larger volatility in markets. When this works it works great, but it can sting - for example, if USA longs pullback and global stocks rebound, then you lose on both sides. So there is a difference between hedging and short trades. A hedge should have correlation with your underlying long; others are simply shorts. For shorts, I would prefer long term weakness (ie below yearly or half year pivot) and think that it should at least be below a quarterly pivot to consider as a short.  

I've also been mentioning DXY strength for several weeks. If you play Forex then that is easiest but if not there are ETFs. The issue with most currency ETFs is that they take up a lot of capital for a relatively smaller percentage move. Factor DXY strength into possible EUR short idea, commodities, and USA main index selection (ie, IWM over DIA for longs). 

Bottom line
If you have caught the move in the current leaders of USA small caps and financials, then I think likely best to hold those as they are likely to benefit from year end positioning. Given monthly levels, sentiment and timing, I will look to reduce or hedge other index longs if we see more weakness early this week. 

Pivots
USA main indexes - Very healthy, with SPX set, INDU set, RUT set and VTI above YR1s. Tech lagging, below NovP. Levels to watch this week are the YR1s that recently cleared on SPX, INDU and VTI (more bullish if they hold as support) and SPY NovR2, DIA 2HR1, QQQ NovP.

Safe havens - TLT and GLD weakness is bullish for stocks. VIX below all pivots & XIV above all pivots confirms risk on. TLT still may have chance at bounce in this low area Q4S3 - NovS3, and this still may work as a hedge for financial longs.  

Global and other - Elephant in the room is USD strength, which has already weighed on several global ETFs that I track and may start weighing on the Dow. 

Other technicals
Advancing volume thrusts like the recent one usually mean higher highs even if the market consolidates in near term.

Valuation and fundamentals
With Citigroup Economic Surprise Index back above zero, I view these combined as mild positive for the market. Last week upgraded to mixed due to valuation, and before that for several weeks I called them both "headwinds."

Sentiment
One of four meters I track at extremes. When we start to see others (especially watching for ISEE daily spikes that close 125+) then that will help create a trading top.

Timing (proprietary timing model)
November dates (published 10/29)
11/1 - non event, middle of drop (major low 11/4 not close enough) 
11/18-21 - possible turn with several asset classes on monthly resistance / support levels (SPY, QQQ, SMH, DXY, TLT, GLD)

 

Financials

The Pivotal Perspective has been all over the move in financials, noting that they looked among best new entries before the jump (check featured posts). 11/9 Daily SPY comment proclaimed them new sector leader (I view IWM small caps as a "main index). 

How high can they go? Here's a full chart workup.

First, let's choose which financial ETF/index to view. The most common seem to be XLF, IYF, KRE and the IWM index. These are all slightly different. Thus far it looks like the index is giving the clearest signals so I'll use that today, though the trading vehicle that matches this is IYF. 

Sum
Longer term gains likely, near term digestion and consolidation bit more likely; for now the level to watch is YR2 / Q4R3 combo. If that looks like resistance and TLT reclaims Q4S3 then I still think that hedge idea could work. But given that we are heading into year end, and everyone wanting to be long banks, I don't think financials will drop too much. 

IXM Q
Nothing wrong with this launch. I'm sure Wall St will be cheering for this to reach 2007 highs at some point. 

IXM M
When we add the Fib grid we see the significance of this breakout, which is also clearing key 61% resistance from 2007 high to 2009 low. RSI not yet overbought. That 255 level is history. 

IXM W
Power move outside weekly BB and above RSI 70. This will digest at some point to let time catch up with price. 

IXM W
Picture perfect move from YS2 to YP, down to YS1, YP support, fast move to YR2. 

IXM D
11/4 low bang on YP; 11/14 high on YR2. Maybe the fastest move from YP to YR2 I can recall. RSI peak of 85 is awesome. 

Currencies

When I was working full time at a hedge fund I kept a closer eye on the big currencies: DXY, EURUSD, USDJPY, AUDUSD. Here are a few notes of interest. 

DXY W
Broken out of 18 month range in very bullish fashion The lines are drawn at the March and May 2015 high and low closes which defined the range until last week. 

DXY D
The usual pivots chart - above Q4R2, tagging NovR2. 

EURUSD
Has not yet broken the 2015 lows, but looks like it could go that way. There is a vote coming up. Given Brexit and TrumpIt, probably markets will decide to go against polls heading into the vote - likely bearish Euro. 

EUR broke the 2HS1 without any attempt at bounce. Below Q4S3 is 1.04 area, then YS1 down at 1.02. 

AUD D
Not only reflecting USD strength, but perhaps some China weakness as well.