The China short

Well this turned out to be a good move and whatever I missed by reducing max leverage on 11/28 and then again on 12/12 on USA longs has been made up on this short. It was the best index asset to short the past week and nice to catch. I was quite right to add to the initial position of 12/12 on 12/14, but I also made a mistake and covered the later entry too early. So now a question - hold or take?

Let's do a full chart workup on FXI.

Sum
All timeframes are in downtrends below 20MAs and 10MAs on each, which points to holding short. Yet daily chart RSI is fully oversold and weekly chart outside Bollinger band are both fairly rare conditions which can lead to snapback rallies. The 2017 Pivotal Perspective as of now is that FXI set to open below the 1HP and Q1P, but still on track to open above the YP at 33.74.

Additional considerations: SHComp also has been dropping. Bitcoin soaring and AUDUSD tanking both show problems inside China. 

Even though chance of bounce likely increased with RSI fully oversold, that breakaway gap is truly ugly and think the best thing is to hold and see what happens with 2017 pivots. 

Q
Below 10 and 20MAs. No Fib (not shown) support, and still above lower BB. MACD on a sell.

M
Below all MAs. If it closes under the 10MA, it may force institutional selling in January. 

M
50% at 33.57 might be additional level to watch. This is the entirely 2016 yearly range. MACD also turning negative at this level (Nov was slightly positive). 

W
BB breakdown is fairly rare and can lead to some big snapback rallies. Or, I can wait until clear divergence. Back above W50 at 34.52 would be additional positive. RSI room to move lower. 

W pivots
Not on any long term support. 

D
Broke Q4S1 without any try to hold. RSI fully oversold but outside BB. 

Current 2017 pivots (will change)
YP 33.74
1HP 35.41
Q1P 35.68

 

Safe havens

Sum
Safe havens GLD and TLT continue to confirm "all in" for stocks. TLT below all pivots as of 11/10; GLD below 3 of 4 pivots as 11/11 and below all pivots as of 12/14.
VIX in particular another move nailed - massive drop below all pivots on 11/9, and has remained under all pivots on daily close. XIV more signs of trading top with bit of a fade from Q4R2. 

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 fully oversold, but absence of selling pressure followed by weak buying. Daily chart entirely below D20 since 10/4. Very weak!

GLD
Break of YP without any try to hold - bearish. Since then has stayed below the level. Entirely below D20 since 11/10. 
 

GDX
Above YP, but below others and falling MAs. Not a buy. 

VIX
Reaching low area, but question is how long it stays down here. 11/9 clear as day VIX sell / stock buy, and below all pivots since then on daily close. No overshoot of lower BB band yet.

XIV
Daily chart highs on Q4R2 with mild fade; still above rising D20 though. 

USA main indexes

Prior week: " Markets paused and pulled back on several long term levels: SPX set YR2, INDU 2HR2, NDX YR1 and RUT YR2."

Last week: All USA mains still under major yearly resistance levels on cash indexes but no significant selling pressure yet. 

Sum
SPX set on resistance via SPX YR2 and SPY Q4R2, but no significant selling pressure yet. 
Tech set - NDX and QQQ at resistance and under-performing compared to USA mains, but no selling pressure yet. 
INDU set - nearly to YR2 on INDU and already there on COMP. Amazing move among USA mains with no significant drop the entire way up per the futures charts - each down bar holding open of previous up day. 
RUT set all the way to YR2 and has more of a shuffle since then; still above rising D20 though. 
Broad indexes NYA and VTI mostly positive; NYA above YR1 resistance is bullish, VTI mild fade from Q4R2. 

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 (now March 17 H)
Futures "1" continuous contract with the works

SPX / SPY / ESH / ES1
SPX weekly shows clear pause at YR2, but so far without selling pressure.
SPY staill at Q4R2; its yearly levels are different due to 8/24/2015 move.
ESH no questions asked entry on 11/9 and so far all above a rising 20MA and mostly above rising 10MA as well. 
ES1 like SPY is on Q4R2; not textbook RSI and BB divergence on 12/20 high test. 
SPX set on resistance via SPX YR2 and SPY Q4R2, but no significant selling pressure yet. 

NDX / COMPQ / QQQ / NQH / NQ1
NDX 2 bars with YR1 tag, but no selling pressure. 
COMPQ slightly above resistance. 
QQQ (similar issue to SPY with yearly levels being different from cash index due to 8/24/15 spike) has faded a bit from 2HR2
NQ did *not* have clear buy on 11/9 (still below NovP, all others above) but has held Q4P since then. RSI not overbought like others.
NQ1 a bit stronger, above its YR1. 
Tech set - NDX and QQQ at resistance and under-performing compared to USA mains, but no selling pressure yet. 

INDU / COMP / DIA / YMH / YM1
INDU bang on YR2, and COMP as well. 
DIA looks fine and above 2HR2. 
YMH clear as day buy 11/9 and entirely above rising 10MA from there with RSI an amazing 86 and purely overbought from 11/10 on
YM1 also has YR2 not far above.
INDU set amazing move among USA mains with no significant drop the entire way up per the futures charts - each down bar holding open of previous up day. 

RUT / IWM / RJH / RJ1
Picture perfect low of year on YS2 and high of year on YR2. 
Held rising 20MA on the way up; RSI divergence more notable than DIA with clear lower high on 12/20. 
RUT set all the way to YR2 and has more of a shuffle since then; still above rising D20 though. 

NYA / VTI
NYA is above YR1, bullish. 
VTI mild drop from Q4R2. 

Valuation and fundamentals

Thomson Reuters reports the SPX 12 month forward P/E at 17.2, which is a slight uptick from last week. The 10MAs continue to rise, with 17.5x forward earnings up to 2285 from 2278 last week. 

This site has consistently maintained that I expect to see 18x-20x forward earnings for a real bull market euphoria high. Currently, 18x 10MA is 2350 and 20x 10MA is 2612. These may continue to increase, but for now this is my target range which is an admittedly wide +3.9% to +15.4% upside from current levels on SPX. 

*

Fundamentals as shown by the Citigroup Economic Surprise Index stalled a bit but still in decently positive territory. 

My take on these is moderate positive for markets. Valuation is "up there" but "should" go higher in this phase of the market. Fundamentals are fine. The ideal move would be higher (note previous highs up closer to 100 on that index) and then a fade that stays mostly above the zero line. A rapid return to negative territory, especially as FOMC talks hikes, would be different. 

Yearly pivot promise

In talks I have referred to the Yearly Pivot Promise. The idea is most asset classes will visit YR1 or YS1 at some point during the year. On the Dow, only 4 years since 1950 have *not* seen either YR1 or YS1. So this doesn't have to be a huge percentage move, but it is a very likely one. Of course the pivot is the dividing line between the bullish and bearish perspectives. 

2016 was fantastic year for trading because we saw lots more - SPX from YR1 to YR2, RUT from YS2 to YR2, etc. I don't know what 2017 will bring, so far I am aiming for YR1s on USA mains and YS1s on safe havens. 

This is because USA main indexes are all on track to open above 2017 yearly pivots, and safe havens below - though these levels are not finalized until the last close of 2016. Currently 2017 levels are:

SPX YP 2115, YR1 2420
NDX YP 4585, YR1 5285
INDU YP 18420, YR1 21390
RUT YP 1399, YR1 1856

Given these targets, it make sense to be holding USA stock longs with an eye on 2017. More on 2017 pivots and we approach year end. 

Total market view

Review
12/11 Total market view: "This is really an amazing move and everyone knows it. So, sentiment has gotten to the point where it often does near market highs or places where upside is more of a struggle. Despite showing several signs of longer term strength, at some point the rocket runs out of fuel and I think we are probably at that time. Bottom line - Just like last week all we needed to do was watch Tech set Q4P (which clearly held and rallied), this week I'd suggest watching reaction from RUT YR2 1387 which is an amazing accomplishment with lows of year on YS2. The market has surprised me with strength and I suppose that could continue, but I 'think' the next move is sideways or some drop."

Result was high of the week on RUT 1388 and down from there in early hours of trading on Monday. Other indexes rallied into 12/13 highs but also ran into resistance on long term resistance levels (see Pivots section below).

Sum
Even though initial blast off post election lasted longer than I thought, I think likely that Santa has already delivered and next move sideways or some drop. Digestion would be quite normal here. At the same time, unless there is some political or international relations shock, it is hard to imagine too much selling pressure. 

Bottom line
Recommendations shifted from very long (120%) to defensive (50% net long) last week. The hedge was right from the highs on IWM and FXI shorts are making money. If right about sideways or down, then can simply hold current positioning without too much change. If market takes off up, or FXI holds its D200, then quickly back to market weight long with a focus on USA leaders by covering shorts & taking off hedges. Probably I will do at least some of latter next week. 

Positioning
More detail here in dedicated post. Ideally we are locking in gains without missing further upside. This is why I adopted for more hedging rather than outright exits, because a breakeven stop on the hedge quickly takes portfolio back to long side. Main changes last week were adding IWM hedges per last week's Total market view, adding FXI shorts, taking some gains on DIA and QQQ. All of these so far right moves. I was willing to take some gains because sentiment clearly at huge extremes and usually these are not times to press on the long side. 

Pivots
USA main indexes - several long term levels have capped the move. I think it is more likely that the market will be sideways or down instead of resuming rocket launch. In play: SPX YR2 2282, INDU 2HR2 & YR2 combo at 19900 - 20020, NDX YR1 4960, and RUT YR2 1387.

Safe havens - VIX and XIV both very constructive for stocks. TLT and GLD both below all pivots now, though GLD may be able to recover its YP.

Global - Last week's Total market view pointed out FXI weakness and having done my chart homework was willing to take short on 12/12 with break of Q4P, hold despite recovery 12/13, and added on 12/14. 

Currency and commodity - DXY stronger above YR1 102.72.

Other technicals
Market has gotten ahead of itself with several weeks outside weekly Bollinger bands on leaders IWM, DIA and XLF (SPY just 1 week outside the band and QQQ not at all). RSI on weekly charts is high, and daily RSI readings are literally off the charts. The market needs to work off the overbought condition - this can happen by sideways or down. 

Is market making a top? Here's my checklist. 

Valuation and fundamentals
Currently constructive, though market may hang around 17.5 for a while before trying for 18x. 

Sentiment
Several extremes reached recently per this post on 12/11. 

Timing
December dates (published 11/26)
12/1-2 strong - turned out key pullback low as suggested last week: "If Tech holds Q4P a lot would line up quite bullish" 
12/7-8 maybe - non event middle of up
12/19 - setting up for low or non event
12/28 - TBD
 

Positioning

As of 12/10, I was recommending 120% long as follows:

3 IWM, 2 DIA = 50%
3 XLF, 1 SMH (semi conductors much earlier buy) = 40%
1 RSX = 10%
2 QQQ = 20% (from 12/7)

Changes suggested this week on SPY daily were:

12/12
3 IWM short hedges as noted in Total market view 12/11
1 FXI short
= 40% short / hedges, 80% net long, 160% exposure total

12/13
Take gains on 1 QQQ, down to 110% long so 70% net; hold -40% hedges and short.

12/14
Take gains on 1 DIA, down to 100% long and 60% net; add FXI short for -50% short, 50% net long, 150% total exposure.

12/15
No change.

12/16
No change.

Current
3 IWM, 1 DIA
3 XLF, 1 SMH
1 RSX, 1 QQQ
= 10 units or 100% long

3 IWM short hedges from 12/12, breakeven stop
2 FXI shorts from 12/12 & 12/14
= 5 hedges / shorts = -50% short

Net long 50%, total exposure 150%. See? 

Next
Main question will be to go back to offense (back to 100% long or higher), defense (hold the hedges and shorts, though it is hard to make argument to be less than 50% long when all USA mains are above all pivots, or continue moderately long with more cash. 

Based on FXI D200MA, may take quick gains on 1 FXI short. RSX is also giving us several reasons to exit - monthly 50MA, weekly 200MA, weekly RSI & BBs. It has been a great rotation out of EWZ long post election, but think I'd rather own DIA than RSX so if out of latter maybe will look to add back on former. Then there is the question of the IWM hedges. Simple solution is breakeven stop, but could also get out of some or all when 2 hour charts reach RSI oversold.

If we cover IWM hedges, then back up to net 80% long and 120% exposure; cover 1 FXI short would be 90% long and 110% exposure; exit RSX then 80% net long and 100% total exposure or in other words, 9 longs and 1 short. 

Sizing limits
150% long
50% short
Maximum total exposure 200%

Currency and commodity
I am separating these out from a positioning scorecard because a reduction in dollar longs should not make one underweight USA stock market. Time may not permit a full version of both of these, so I'll continue to focus on stocks and mention these occasionally. 

Market top checklist

This was a list I developed in the summer as I thought indexes were likely at a major high area. I've edited it slightly for clarity.

Sum
Several conditions exist - most especially multiple USA main indexes on long term resistance, RSI extremes and weekly & monthly Bollinger bands, and sentiment. But until we see VIX and XIV confirming trouble, mostly likely scenario is small dips that are bought as market settles into sideways digestion period. 

1 - Pivots
A. Multiple major USA indexes at major resistance?
B. Rejections from those levels?
C. VIX / XIV alert?
D. Other global indexes already weaker? 

1A check! 1B partially, 1C not yet - not at all.
1D, a new consideration - mixed here with developed markets NKY & DAX fine with higher highs on 12/16. But emerging markets especially China and India having trouble. 

2 - Other Technicals
A. RSI extreme reached?
B. Negative divergence?
C. Bollinger bands in play, or divergence? 
2A yes quite; 2B, starting recently; 2C yes on several weekly and monthly charts. 

3 - Price action
High tested with at least one lower high? 
No. OK, on short timeframes 12/15 could be considered a test / lower high from 12/13 but this is not what I mean. I mean more like summer topping process with initial high 8/15, test 8/23, then lower highs 9/7. 

4 - Safe havens showing concern?
TLT no, GLD above YP would add to stock drop possibility. 

5 - Breadth or volume divergence?
Declining stock volume has made a fast trip back to negative territory. Bit odd to see higher high then fast lower low. 

6 - Sentiment extremes reached?
Yes definitely, per this post on 12/11. 

7 - Valuation level?
Enough, but more powerful on a full round number. SPX currently near 17.5x forward earnings. 17 down near 2215 and 18x at 2345.

8 - Timing?
Did not have 12/13 area listed.
 

Safe havens

Sum
VIX and XIV both very constructive for market since 11/9 and 11/7 respectively and both not showing any trouble here. This means stocks have more chance of breaking out upside, or at least going sideways instead of down. 

On safe havens, GLD broke its YP as I thought, but has a better shot at some recovery. Watching for a maybe small buy although I am really not a fan of positioning in such ugly overall downtrends. 

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
Not on any long term support yet; daily chart not on any level either. RSI and Bollinger band divergence is building. 

GLD
Break of YP as expected, but more easily recovered that TLT. Even if it recovers, this is not the best long setup. All MAs have falling slope; quarterly chart downtrend (below falling 20MA, monthly chart below slightly falling 20MA, weekly downtrend yet RSI touching 30. Can we think about a small position here? I guess - YP if recovers and weekly RSI oversold. Given all the downtrends, I would not make it a big one and would be quick to take gains. 

GDX has stayed higher above the YP, but not really anything to be buying here. 

VIX
Below all pivots on daily close from 11/9. Friday's action actually quite bullish for stocks. The most bullish thing for market would be for VIX to stay 11-14 area for a while. 

XIV
Doing fine! Not on any level, though DecR2 within reach for a tag. 

USA main indexes

Prior week: "Last week: SPX set jump above 2HR1 / Q4R1 and fast move to Q4R2; Tech set held Q4P and jumped above all pivots on 12/7; INDU approaching YR2 (!); RUT testing YR2 (!); and NYA/VTI confirming strength."

Last week: Markets paused and pulled back on several long term levels: SPX set YR2, INDU 2HR2, NDX YR1 and RUT YR2.  

Sum
Despite possibility of Santa surprise, I think more likely that markets remain under the levels that capped the action last week. This means SPX YR2 2282, INDU 2HR2 & YR2 combo at 19900 - 20020, NDX YR1 4960, and RUT YR2 1387.

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 (now March 17 H)
Futures "1" continuous contract with the works

SPX / SPY / ESH / ES1
Upside limited near term. SPX YR2 has stopped the move. 
SPY shows 12/15 close under Q4R2, inviting sellers.
ESH all above pivots and nicely rising MAs. RSI starting to show divergence. Digestion would be normal. 
ES1 shows textbook Bollinger band and RSI divergence on the 12/15 high test; ie, this was the first advancing day since 12/7 to be inside the band. 

NDX / COMPQ / QQQ / NQH / NQ1
NDX YR1 & COMPQ 2HR1 have stopped the move. QQQ also on 2HR1. Futures above all pivots and rising MAs, but glaring RSI weakness compared to the other indexes. Lastly, below 4915 on the continuous contract will help seal the drop. 

INDU / COMP / DIA / YMH / YM1
INDU 2HR2 and (YR2 just above) and COMPQ YR2 have stopped the move. DIA also on 2HR2. Futures massively overbought and above rising MAS; digestion likely.

RUT / IWM / RJH / RJ1
YR2 has stopped the move. A hold of recent 11/25 high along with 2HR1 / Q4R2 acting as support would be constructive range bound action.

NYA / VTI
NYA testing 2015 high. 12/13 high on Q4R2, but holding above the YR1 / 2HR1 combo would be more bullish.
VTI clear buy 11/9, but also strugglign at Q4R2 resistance.

Valuation and fundamentals

I have adopted a smoothed 10MA to reduce the noise on this data series from Thomson Reuters. Last week's 10 MA of 17x forward earnings was 2205 and this week up to 2213. I especially like this because the non MA version seems to show a drop in earnings estimates for last week which is probably not correct. 

17.5x 10MA = 2280, up from 2270
18x 10MA = 2343
20x 10MA = 2603

There you have it, a continually updating target range for SPX at 18x - 20x forward earnings. I don't think the market is going higher than that. 

Based on 12/16 close, this means SPX about 4-15% upside from here, although it is possible that the 10MA will continue to climb and this shift the target range higher as well. 

*

Citigroup Economic Surprise Index has worked very well, leading the market on the summer breakout up, the stall, and then the post election rally. If bullish then this needs to stay in positive territory for a while. It is the nature of "expectations" to shift over time, so even if strong markets there are some swings up and down. Still, better for stock & interest rate bulls for this to stay above zero. 

 

Total market view

Review
12/3 Total market view: "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."

Result
Tech held Q4P and rallied back above all pivots. USA indexes continued higher. SPY daily comments recommended reducing then eliminating hedges 12/5-7, and going back up to some leverage 12/7.

Sum
This is really an amazing move and everyone knows it. So, sentiment has gotten to the point where it often does near market highs or places where upside is more of a struggle. Despite showing several signs of longer term strength, at some point the rocket runs out of fuel and I think we are probably at that time. 

Heading into options expiration and put-call is quite low. This means option writers would benefit from engineering a selloff, or at least keeping things sideways to drain premium. Keep that in mind. 

Bottom line - Just like last week all we needed to do was watch Tech set Q4P (which clearly held and rallied), this week I'd suggest watching reaction from RUT YR2 1387 which is an amazing accomplishment with lows of year on YS2. The market has surprised me with strength and I suppose that could continue, but I 'think' the next move is sideways or some drop.  

Positioning
More detail on moves I have recommended in a dedicated post here. The decisions will be whether to 1) reduce leverage and 2) hedge which will take market exposure less than market weight. In general I was too quick to reduce leverage and hedge after 11/28 after saying buy 11/7-15, but that doesn't mean the next reduction will be a mistake. A partial hedge against RUT YR2 is a possibility with a tight stop above; this effectively locks in gains from any buys while holding longs. Your perspective may differ, but it easier for me to do this then take gains and position back in on the long side. Also, there is no reason to lose any money on the most recent leverage longs on QQQ from 12/7.

Pivots
USA mains - For the coming week RUT YR2 level to watch and a few Q4Rs on SPY (Q4R2), DIA (Q4R3), and VTI (Q4R2).

Safe havens - Continue meltdown. TLT and other bond variations not really on any levels which suggests lower. GLD nearly testing YP. VIX below all pivots from 11/9 on daily close fantastic job confirming stock longs, again.

Global - Several weaker indexes had pivot improvements last week. EFA rallied above Q4P and DecP, EEM back above YP, INDA recovered 2HP and rallied above DecP. FXI weekly chart still looks like it could easily drop.

Currency and commodity - USD healthy hold of DecP and back up to highs. The real question is whether EURUSD breaks down out of 18 month range to correlate to USD break out up. 

Other technicals
Multiple signs of strength abound across time-frames and USA main indexes. Also, 2017 Yearly Pivot Promise suggests significantly higher levels will reach on USA main indexes, and lower levels for safe havens. More on that in weeks to come.

Valuation and fundamentals
Citigroup Economic Surprise Index confirming stock launch and bond drop. Where is valuation a real concern? At 18x forward earnings. We're not there yet. 

Sentiment
Getting up there, and option writers would benefit from a drop here.

Timing
December dates (published 11/26)
12/1-2 strong - turned out key pullback low as suggested last week: "If Tech holds Q4P a lot would line up quite bullish" 
12/7-8 maybe - trading high?
12/19 - ?
12/28 - TBD

Sentiment

Sentiment is starting to look like it frequently does at other highs.

Sum
Put-call daily extreme & weekly low value, ISEE higher value but not extreme yet, NAAIM extreme, AAII recently some extreme depending on timeframe. All this is enough to limit upside and increase risk of shakeouts. 

Put-call (CBOE standard put-call ratio with 10MA)
Daily view - only a handful of days lower in last 2 years. 

Weekly view
Not as extreme but still on the low side in terms of number of weeks from 2011 below last week's value. 

ISEE
MAs still subdued but 12/8 reading highest since 10/10 and among higher values of 2016.

NAAIM
2nd highest reading of all data going back to 2006 2H.
Other top ten, along with rough weekly results on SPX

1/30/2013, 104 - 4 week stall in otherwise QE fueled melt up
11/27/2013, 101 - 2 weeks sideways then down
7/27/2016, 101 - price level near key high, upside limited
12/11/2013, 100 - middle of pullback low, 2 weeks up then another drop
3/1/2007, 100 - actually quite correct, big buying after first drop in 9 months
1/3/2007, 100 - no damage, market continued moderately higher
2/25/2015, 99 - price level near major highs, not significantly higher over several months
12/26/2013, 98 - next move down
8/17/2016, 87 - near level that was high for about 3 months

12/8 - 101 ? 

AAII
Reached more toppy levels 3 weeks ago, which has been quite correct. Still, as of then, 

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


 

 

E-wave

From my first Elliott wave post in March 2016, I have been pointing to ideal SPX top 2250-2500 Q2 2017 to Q2 2018. 

I recently expanded the idea to list price and time targets across USA main indexes in a Larger View post here. 

Amazingly all 61% price targets have been met so my conclusion is - higher! 

I first posted a weekly chart dividing into a similar 5 wave pattern back in June:

And refined recently as this (as a stronger way this could play out).

Updated chart here. Lines are very approximate. It is the overall pattern that interests me. 

Anyway, current E-wave status is:

Monthly chart W5

Weekly chart w3 subdivision of W3, meaning this is the best portion of the move because this can run a while; then we see w3 end, w4, w5 all to complete W3; a larger weekly W4 that matches W2 drop, then a final W5 that will complete the monthly pattern.

Daily chart made a complete W5 up and very time extended ABC down into 11/4 low, not is in process of another 5 wave up pattern. One can debate daily chart count (there are always other counts, which is why I don't do Ewave too much) but I don't think we have see a real 4 yet. 
 

Positioning

This is a new experimental series I began after election to show how one could use this site for an actively managed ETF strategy with some (not excessive) leverage.

My one error from last week was including currency and commodity in total exposure count so I'm revising this to be:

Up to 150% long stock index ETFs
Up to 50% short stock index ETFs
Max total exposure 200%

Then currency & commodity positions I will do in similar scale 1-5 and capital allocations are really up to you. Currency ETFs don't move too much so if I said 2 USD and 2 oil that should mean roughly similar risk reward, although the oil will likely move much more. Of course futures are another story.

Basic view was up to max leveraged long 11/11-15 since safe havens crumbled and IWM, DIA, SPY and VTI had all launched above YR1s.

I took off leveraged on 11/28 move which now appears too cautious. I further lessened long exposure with 3 hedging positions on EEM and QQQ, which SPY daily comment said to reduce on 12/5 and then obviously any move above pivots that made hedge invalid from there meant further elimination of hedges and out 12/6-7. Reduction of hedges when you are fully long means back to fully long without touching the long positions. 

On 12/7 I said back to 100% long and in fact best place to add leverage would be on QQQ.

So, if we use the scale on stocks only, leaving currency and commodity as separate, it would be something like this at start of last week.

3 IWM, 2 DIA = 50%
3 XLF, 1 SMH = 40%
1 RSX = 10%
2 QQQ shorts (-20%) valid below DecP, reduced and out 12/5-7
1 EEM short (-10%) valid below YP, out 12/6

Back to leverage 12/7 would be something like
3 IWM, 2 DIA
3 XLF, 1 SMH
1 RSX
2 QQQ from 12/7
12 longs or 120%

Even though I think markets higher, not a good move to go max leverage with sentiment this toppy and RSIs stretched. 

Then currency / commodity on scale of max 5 positions

DXY is still bullish, +2
Oil moderately bullish, +1
GLD short possible in addition to other currencies against USD like EUR but my default is to watch for what is going up so I won't count these here

Signs of strength

There are many things to list so instead of charts here is just a list of items on main USA indexes.

Main point here is that train needs to slow down before reversing so with multiple signs of strength across timeframes and USA indexes, higher highs likely ahead. Also keep in mind the Pivotal Promise currently pointing to 2017 SPX YR1 2408 at current levels. This will continue to change until 12/31/2016. 

Quarterly charts
SPX RSI 75, currently nixing divergence from previous 2015 highs also 3 bars on 75.
NDX above 2000 top 4816
INDU RSI 74, also nixing more threatening divergence high near 70.
Of course, above 2015 highs on all main USA indexes except NYA.

Monthly charts
SPX pushing the monthly BB; amazing to think last tag of monthly BB 12/2013. (June and July 2016 close but not quite according to current view)
INDU, RUT, VTI all *outside* monthly BBs!

Weekly charts
SPX, INDU, RUT, NYA, VTI all outside weekly BBs; only INDU and RUT have RSI 70+.

Advance decline volume difference - no divergence on daily chart, weekly chart plenty of room to move up. 

Safe havens

Sum
Safe havens have help confirm stock longs and then max longs with VIX below all pivots 11/9+, TLT below all pivots from 11/10+, GLD below 2HP from 11/11. VIX did great job *again* with test and hold of Q4P on the 12/1 stock index pullback low. Next level to watch is GLD YP but the way safe havens have traded overall in 2H I think breakdown the more likely move!

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
In freefall and good example of longer term active management by reducing to underweight under 2HP from 10/10 week and minimal exposure 11/7 on. 
Next support Dec S1 then 2HS2 below that. 
Daily chart starting to try to build divergence but all under falling 20MA since 10/3 will take some work to turn around. 
TYX, TNX, ZB1, ZN1 all not on support level either; usually we will see major levels for a real turn. This means rates higher & TLT lower. 

GLD
Testing YP. Given TLT move, this may not hold. Even if it does, all MAs with sharply falling slope on daily chart means not best place to put money to work. 

20161210 33 GLD W.png

GDX
Somehow not doing as badly as the metal. 

VIX
In 11s but note mid 2014 low saw into 10s. Why not?
Another outstanding job by VIX with test and hold of Q4P on the 12/1 stock pullback low. VIX under all pivots from 11/9 close and despite poking above 11/11 and 11/12 not a close above any pivot since 11/8.

XIV
Did a great job on 11/4 low with test and hold of YP near exact. Also confirming strength above YR1 since 12/5. 

USA main indexes

Prior week: "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."

Last week: SPX set jump above 2HR1 / Q4R1 and fast move to Q4R2; Tech set held Q4P and jumped above all pivots on 12/7; INDU approaching YR2 (!); RUT testing YR2 (!); and NYA/VTI confirming strength.

Sum
Last week I said the level to watch was Tech set Q4P. This tested and held exact on cash index NDX and futures and near tag on QQQ, and all variations rallied above all pivots on 12/7.

For the coming week RUT YR2 level to watch and a few Q4Rs on SPY (Q4R2), DIA (Q4R3), and VTI (Q4R2). Even if RUT stalls maybe INDU and SPX will continue up for YR2 tests.

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 (now March 17 H)
Futures "1" continuous contract with the works

SPX / SPY / ES1 / ESH
SPX blasted through 2HR1 and already near YR2 at 2282.
SPY at Q4R2; last resistance area stopped market for 8 trading days, this one?
ESH even higher RSI on current top is sign of strength. 
ES1 not at resistance yet; you can see launch above 2HR1 / Q4R2 combe on 12/7.

NDX / COMPQ / QQQ / NQH / NQ1
NDX more to go to YR1, COMPQ already above YR1 and testing 2HR2.
QQQ resistance is bit further, but not the Q4P near test and back above all pivots on 12/7.
Futures charts show low bang on Q4P and up; NQ1 YR1 was exact high on 10/25 so that is next level to watch. 

INDU / COMP / DIA / YMH / YM1
INDU looks like 2HR2 / YR2 in reach! COMP is almost to YR2 also.
DIA at Q4R3 with 2HR2 just above, and bit futher to go on the YR2 area. 
YMH, if you didn't want to buy RSI overbought then you missed entire rally - all indicators must be judged in context. 
YM1 at Q4R3 with 2HR2 and YR2 above that. 
 

RUT / IWM / RJH / RJ1
RUT at YR2 and RSI 69.5 means this level the tell for the coming week. 
IWM and figures right on the level and no damage yet. Note - IWM first to launch above YR1 on 11/11 and if looking to add longs that turned out best choice.

NYA / VTI
NYA confirming rally; note above Q4P 11/10 on and more convincingly so 11/15, same day as SPY clear of YR1 area. When NYA confirms the move, I've had very few misses. NYA again confirming strength here above YR1 in past week. 
VTI calculated differently launched above all pivots 11/9, above YR1 on 11/17. Fast jump from Q4R2 to Q4R3 in past week. 
 

Valuation and fundamentals

I don't understand the curve fitting of the model but Thomson Reuters P/E went *lower* last week. I think the solution here is a moving average so I am just going with a 10 period MA. This will cut out this noise and have smoother valuation areas to watch as support or resistance. 

For example, the current 10MA of 17x forward earnings is 2205. Market paused at this area for 2 weeks then blasted through last week and already near 17.5 which is 2270. Note that throughout this series on many occasions I have said we should see 18x-20x forward earnings for a true euphoria bull market high. Current 18x 10MA is 2335.

*

Citigroup Economic Surprise Index again doing a nice job of confirming the market launch and rate rise by jumping into positive territory. 

China tech

I know, China is about to crash right? Here is some news for you: Shanghai Comp already crashed -49% from 2015 high to January 2016 low, and since then quietly rallied 25%. 

Here's an idea - if USA tech gets laggy then maybe China tech will takeover as a sector-like leader. This is pure theory at this point, since some key China tech names have weaker pivot status than QQQ. Because we should compare apples to apples, let's stick to ETFs instead of stocks. The highest volume is KWEB and it has the big names: Alibaba, Tencent, Baidu, etc. 

Repeat, not a trade rec, this is larger view idea for a theme we may see in 2017. At this point it is somewhat like this post on rates, bonds and financials in August, which was an idea about sharply rising rates. Although I had recommended TLT as a speculative short right at the highs, the real official TLT short signal along with clear XLF out-performance came more than 6 weeks later at the beginning of Q4 in early October. 

Sum
No hurry to enter here with KWEB below Q4P and DecP (medium term weakness) while QQQ still holds above Q4P. Thus far China tech has dropped sharply off early October highs and lower since the election. If YP breaks then I will put this idea on a shelf and not take it off until recovery, and even then we'll soon have 2017 pivots in play. But if QQQ breaks Q4P and KWEB holds its YP then pivot status is roughly equivalent and I'll keep an eye on it. 

KWEB W
Not so impressive below falling 20MA, rising 20MA; still above flatish 50MA and 100MA however. This chart is basically sideways and range bound since 2014. 

Comparing to FXI from 2014 in red, mostly the tech companies have outperformed with brief period during the massive China rally in 2015 1st half. 

Moving to a daily chart from 2016 2H, tech was outperforming but now not really. 

KWEB W
Standard long term pivot chart here with high on 2HR2 and back to test the YP. If long I would not have confidence that it holds since already tested. 

KWEB D
This is more of a toss up with YP test on RSI divergence. 

Lastly I really have no idea how much currency is impacting the range on KWEB. Here's CNYUSD from 2014, -12%. This means theme could be right and KWEB might not be the best vehicle.