Total market view

Review
1/28 Total market view: "Given two indexes on levels (QQQ on Q1R2 and DIA and JanR1), RSI divergence, movement structure, we may have just seen a trading high. Even if that is the case, the better thing is to hold and reduce on what trades below FebPs which will be in play from Wednesday. ... The bull market is making an amazing move and usually this means better to err on the side of holding; ie, don't be too hasty to sell. Safe havens are all saying risk on."

Result
Sigh. IWM, DIA and NYA traded below FebPs last week, and daily comments reduced exposure. I should have kept to VIX confirmation and overall bullish view, as VIX stayed under all pivots and again correct on the market. Returning to 100% long on Friday with all USA main indexes above all pivots meant paying up.

Sum
Phenomenal move continues as any doubt about Trump rally seems rather silly. Even more impressive is the follow through in 2017 Q1 in nearly every risk sector that didn't participate in 2016 Q4 - by this I mean Tech set and global stocks. Only GLD is showing some concern, and that is in part due to weakness in $USD.

On USA indexes did we just see a range bound re-test of highs with DIA and QQQ on levels or start of a melt-up move? I don't know, but there is a case to be made for either. Until VIX closes above a monthly pivot, or we see clear sentiment extremes along with multiple USA main indexes on levels, probably best to hold fully long. 

Bottom line - Range bound or start of melt up, not sure here. There is no reason why VIX can't sink down into the 9s and indexes go for major resistance (and by this I mean Q1, 1HP levels, not just monthly). If market fades then IWM will likely be the first below a monthly pivot. 

Positioning
Not my best move starting week 110% long, reducing on weakness, then back to 100% long with all USA main indexes above all pivots on 2/3. 

Pivots
USA main indexes - QQQ on Q1R2 and DIA on FebR1; these are the levels to watch this week. Other indexes room to move higher. IWM back above FebP and will likely be first to break.

Sectors of note - Financials (XLF, IYF) and semi-conductors (XBI) at highs - healthy for the market.

Safe havens - VIX and XIV right again on recent move, showing strength and risk-on through the mild pullback. Only GLD is doubting, fractionally above all pivots.

Global indexes - $USD weakness has allowed rallies in global indexes. DXY testing YP means these rallies could stop here or become a major theme for the year. 

Currency and commodity - DXY tested its YP on 2/2 and so far holding. Interesting that oil hasn't benefited despite $USD weakness.

Other technicals
RSIs on quarterly and monthly charts may help show whether market is about to melt up or stop in a range bound re-test of highs. 

Valuation and fundamentals
SPX forward P/E of 10MA of 18-19x target range currently about 2375-2505. 17.5 Might be level to watch at 2308.

Sentiment
Extremes of December worked off in very bullish fashion thus far; ie, no damage to price. Recent return to highs is without bullish sentiment extremes.

Timing  (Proprietary experimental work in progress model)
Feb dates published 1/28
2/6 - Setting up for stock high?
2/10
2/21
2/24-26

Positioning

Heading into the week: 110% long

2 IWM, 2 DIA (mostly before election, 1 shuffle last week)
2 XLF, 1 QQQ (pre and post election)
2 SPY (1/3)
1 SMH (1/18)
1 RSX (1/23)

Adjustments
1/30, -2 IWM
2/1, -2 DIA
2/3, +2 DIA, 1 XLF

100% 

*

Positioning limits
15 or 150% long, -50% shorts or hedges, 200% max total exposure. 

Currency / commodity positions are not included in this system. 

Long term RSIs

SPX Q chart
Note the RSI high in 2014 Q4, 2015 Q1 and 2015 Q2 with 3 closes 75.4-75.8. The quarterly bar is not even half done but RSI at 75.6 means testing the highs since the 1990s. RSI can go significantly higher evidenced by 1998 Q1 high at 95 (!!!), but for now clearing the 75 would be a sign of strength in the market. 

SPX M
RSI for Jan closed at 68.08 and currently 69.06; like 75 area on quarterly chart, clearing 70 without selling pressure would be a sign of strength. Moves that stop at 70 and see selling - notably 5/2015 for example, or 3/2000 - can be more bearish. 

NDX Q
2015 RSI highs were 80-81, and now back at 79.5.

NDX M
Like SPX, approaching 70 area. Above would be sign of strength, selling here more like 4/2011 or 3/2012.

INDU Q
RSI reaching above 73.6 means highest RSI since the 90s, so far a sign of strength. 

INDU M
Despite January's near doji bar with RSI at 70.5 and top of the monthly BB, so far February up! RSI higher and pushing the band. 

RUT Q
RSI currently 70.17 after closing 2016 Q4 at 69.44. Sign of strength to be over 70 but we could still see a selling reaction from this area. 

RUT M
Not as high as the others and still a ways from 70. 

Safe havens

Sum
VIX below all pivots throughout Feb, and XIV clearing YR1 and holding that as support both the tells for the recent move. Ie, if stock weakness was for real, VIX would have stayed above the FebP and XIV rejected from YR1. 

TLT below all pivots. GLD turning into the DXY weakness play and the asset for Trump skeptics, managing to close fractionally above all pivots. 

TLT
Weekly chart far from any level; noticeably higher lows with stock indexes testing highs. 
Daily chart back under all pivots after spending most of January above the monthly.

GLD
Wow, GLD weekly close above all pivots. 1HP is fractional clear but still. 
GLD D clear lift above YP / Q1P / FebP combo on 2/1, with D10, rising D20 and D400 all helping. D100 the next MA test. 

GDX
Interesting that GDX had held throughout Jan, although I didn't like it at the time with GLD below all pivots. 

VIX
Weekly may or may not reach major support for a low.
Daily VIX chart - red line is 2014 lows, which is the low for this decade and the lowest since 2007. 
Once again, VIX correct on markets by remaining below the FebP on daily close. 
Adding the BB, we see a handful of moves to resistance (pivot, MA or BB) since 11/9: 12/1 top on Q4P, 20MA & 50MA, 12/30 top on 200MA, 100MA, 50MA and top of BB; 1/19 top on JanP and 50MA; 1/31 top on BB and 50MA in play again too. 

XIV
Above YR1 has been a tell.
Daily chart shows hold of YR1 as support on 1/30-31. 
And what an uptrend, holding 10MA nearly the whole way with just 2 days below 12/29-30.

USA main indexes

Sum
All USA main indexes back above all pivots after DIA, NYA and IWM had dropped below FebPs on 2/1-2. DIA testing FebR1 and QQQ back at Q1R1, otherwise SPY, IWM and NYA/VTI all room to go higher. 

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 heading to long term resistance at 2319.
SPY should reach FebR1 and then we'll see about the Q1R1 / 1HR1 cluster.
ESH remarkably easy to hold from any election buys - all above pivots, only 1 day below a still rising 20MA.
ES1 again at the top of the daily BB.
SPX set sum - very healthy, should go higher. Next near term target FebR1 but the more important resistance is Q1R1 / 1HR1 cluster 2316-19 SPX.

NDX / QQQ / NQH / NQ1
NDX already above 1HR1 and holding that as support.
QQQ testing Q1R2 which so far is the exact high and will be a level to watch next week.

INDU / DIA / YMH / YM1
INDU has a bit more to go to reach long term levels.
DIA fast jump to FebR1 already. 
YMH only 2 days below monthly pivot since 11/7.

RUT / IWM / RJH / RH1
RUT more to go for long term resistance.
IWM lagged somewhat this year, with a handful of days below monthly pivots; yet did not reach an S1 and another jump above all pivots on 2/3. 

NYA / VTI
NYA & VTI participation very healthy. VTI had held FebP, NYA back above FebP on 2/1 and likely heading to FebR1 then we'll see about Q1R1 above that. 

Valuation and fundamentals

Latest reading of SPX forward P/E from Thomson Reuters ticked up to 17.40, bringing 10MA to 17.16 and 10MA of earnings estimates to 131.90. Using 10MAs to smooth the data:

18x target 2374
19x target 2506

Or 3.3% - 9.1% upside. 

*

Citigroup Economic Surprise Index maintaining in positive territory - looks to be the longest span of time since 2014. 

Both of these moderate positive for markets. I suppose I should watch 17.5 area since it is nearby and could be thought of as a round number target. Real value 2310 as of recent data and 10MA value 2308. 
 

Total market view

Review
1/21 Total market view: "A bullish scenario from here would be IWM recovering its JanP (along with XLF) as other stock indexes advance. If that happens, along with safe havens confirming full risk on, we might want to be back to 100% long or more. A bearish scenario would be more of a shakeout down to Dow JanP and then below. If that happens we can hold existing positions or be a bit less long. Bottom line - While a range has developed which may go lower, at some point I think we will see a move back up to the top of the range and ideally higher for a significant top."

Off on lesser move, correct on larger move. I thought we might see more of a shakeout before an advance. Markets made a mildly lower low on 1/23 then zoomed up to highs. 

Sum
Excepting Tech, USA main indexes have been sideways since December. After this healthy consolidation, most indexes popped to higher highs last week. Given two indexes on levels (QQQ on Q1R2 and DIA and JanR1), RSI divergence, movement structure, we may have just seen a trading high. Even if that is the case, the better thing is to hold and reduce on what trades below FebPs which will be in play from Wednesday. 

Bottom line
The bull market is making an amazing move and usually this means better to err on the side of holding; ie, don't be too hasty to sell. Safe havens are all saying risk on. 

Positioning
110% long. First to reduce likely IWM, XLF then DIA. Most indexes far from any buy setups. 

Pivots
USA main indexes - QQQ on Q1R2, DIA on JanR1.

Sectors of note - XLF 5 days below JanP but quickly back to highs on the pop. XBI above pivots but notably not joining the party. XLE also weaker.

Safe havens - All confirming strength in risk assets. TLT holding JanP but otherwise weak; GLD stopped at 1HP, back under YP and Q1P. XIV soaring above YR1. 

Global indexes - EEM among 2017 winners, with fast move to Q1R1 and 1HR1 jsut above. FXI not as strong but above all pivots; INDA same; RSX popped last week, EWZ also to Q1R1 with 1HR1 just above. Ie, 2 of these are on significant resistance. 

Currency and commodity - DXY holding long term support thus far at 1Hp, and just a bit back above Q1P. Further strength in $USD would like stall some global indexes listed above and sink gold. 

Other technicals
SPY, DIA, QQQ and VTI are all outside monthly Bollinger bands; IWM just a shade within. This is an amazing move! Eyeballing SPY from 2009 lows there are only 5 other bars that are clearly outside the band. Charts outside BBs can continue to push up the band, or fall back inside. More often it is a sign of strength that leads to divergence highs (higher highs in price, weaker on indicator) before a major top. 

Valuation and fundamentals
Moderate positive for the market with 18x-19x target range currently 2405-2539.

Sentiment
Sentiment extremes reached mid December worked off in healthy fashion, but those extremes did work to stop the rally. Of 4 sentiment meters I track, currently 1 at extreme and 1 on lower side. If another reached extreme territory then it would help form a trading top. 

Timing  (Proprietary experimental work in progress model)
January dates published 1/1
1/4 (strong) - 1/3 DXY high
1/6-9 - 1/6 high for SPY, DIA and VTI
1/17-18 - 1/19 (+1) pullback low on SPY, DIA, IWM and VTI
1/28 - TBD

February dates

2/6
2/10
2/21
2/24-26

 

Positioning

This hasn't been my best quarter. I came into 2017 opting to hold most positions from Q4 where if I had sold everything on levels mid December then took every new buy signal (think tech & global stocks) results would have been much better. Oh well.

Coming into the week
2 IWM, 2 DIA (both from near election)
1 XLF, 1 QQQ (pre & post election)
2 SPY from 1/3
1 SMH from 1/18
9 longs, 90% long, no shorts

Adjustments
1/23 -1 IWM, 2nd day below JanP (sigh)
1/23 +1 RSX at least that worked
1/24 + 1 IWM
1/25 + 1 XLF
11 longs or 110%

Decisions will be to hold or take gains. At this point, IWM and XLF continue to look 'heavy' compared to others. DIA is also a candidate to take gains on a level. 

*

Positioning limits
15 or 150% long, -50% shorts or hedges, 200% max total exposure. 

Currency / commodity positions are not included in this system. 

Safe havens

Sum
Safe havens are very constructive for risk assets. TLT tried to bounce and quickly back to JanP; GLD recovered YP and Q1P for a handful of days and failed, back under all except monthly pivot; VIX below all pivots and not on level, XIV soaring above YR1 without any pause at all. 

VIX hasn't reached 9s since 2/2007 and even that is a lesson because as we know the price high was 10/2007. Still, if other safe havens are collapsing I won't say VIX 9s is an immediate stock sell. If VIX reaches 9s and other safe havens are improving, that would point to taking more stock gains. 

TLT
Weekly not near any long term levels yet.
Daily high on JanR1, low on JanP. 

GLD
Rejection of 1HP, and back under YP.
Also under Q1P. 

GDX
Above YP and Q1P, high on 1HP. 

VIX
Testing lows of the decade. One more plunge day would take VIX into the 9s, not seen since mid 2000s. 

XIV
Wow, rocket from YP election low (11/3-4) to above YR1!

USA main indexes

Sum
All USA indexes above all pivots and MAs. Two are on levels: QQQ set has zoomed to Q2R1, and DIA just tagged JanR1. If higher then SPY and VTI have room to reach resistance levels. If lower then the market has made a trading high on JanR1 and IWM likely first to be under FebP. 

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
1HR1 looks doable at 2319.
SPY above JanR1, below 2HR1 / Q1R1 cluster.
RSI making divergence very clear on recent highs. 
SPX set sum: Above all pivots and MAs, and not on any resistance levels currently. RSI divergence on recent high is about the only negative. 
 

NDX / QQQ / NQH / NQ1
NDX already above 1HR1.
QQQ testing Q1R2 and so far no rejection.
Futures charts nearly straight up entire month, amazing! Highest RSI since 11/2014 is sign of strength. 
NDX set sum: Making up for 2016 Q4 in style with power up move, already to Q1R2 and no sign of slowing. 

INDU / DIA / YMH / YM1
INDU far away from long term levels.
Others show high on JanR1 near exact. 
 

RUT / IWM / RJH / RJ1
Only index to make a clear lower high.
IWM broke JanP slightly a few days, and hasn't reached any resistance. IWM more likely to open below the FebP. 

NYA / VTI
Like SPY, above all pivots and MAs. Above JanR1, not yet at Q1R1. 

VIX and XIV

Regular readers know I pay a lot of attention to VIX and XIV. They frequently have the right read on the market and so I have learned to ignore them at my peril. I find technical indicators on these two vehicles to be a great confirmation of stock index positioning.

VIX has been low (ie closing under long & medium term pivots) since 11/8. VIX even dipped into the 10s which is quite rare. This helped confirm "long and strong" after the election regardless of one's political views or fundamental prognostications. 

But even this doesn't capture what has been going on in XIV, an inverse ETF related to short term VIX futures. This is a good article on how it all works, but for now I just want to put up a few charts.

Bottom line - All timeframes on XIV are quite stretched. XIV has already reached 1HR1 and may tag YR1 soon. While this has been an incredible run, I'll be watching for any reaction from these levels: 1HR1 56.82 and especially YR1 59.86. If XIV stops going up, stocks are likely sideways at best and more likely down. 

XIV M
The only bar that compares to the current bar was 6/2014, which was quickly followed by a -48% drop. 

XIV W
This timeframe is also fully overbought, and has closed outside the Bollinger band for 7 of the last 9 weeks. This is an incredible run, but at the point where it should slow down at least and more likely drop. 

XIV W - long term pivots
Already above 1HR1, the first asset class I know of to reach long term resistance already. YR1 within reach. 

Total market view

Abbreviated version of blog posts this weekend, as I am just going to do this summary and not the components. This post may be a bit longer than usual though. 

Review
1/15/2017 Total market view: Sum - "In most USA indexes a range has developed which I think favors the sellers." ... "Bottom line - Portfolio is 120% long and there is ongoing decision to hold or reduce. Based on GLD, VIX and XIV and other technicals I am ready to take some gains off the table, but will still be willing to hold long if GLD YP gets clearly rejected next week."

Result
GLD gapped up to start the week, and taking gains on the 2016 Q4 high fliers (IWM and XLF) was a good move so far. 

Sum
Of USA main indexes, 4 of 5 are above all pivots. Only IWM is a bit below. RSI extremes of 2016 Q4 have been worked off in a very healthy fashion; ie, not much damage to price. In addition, risk assets that did not rally in 2016 Q4 have been up in 2017 Q1, meaning tech set and global indexes. $DXY has turned lower, though, allowing global indexes to rally and GLD to do well. TLT had a brief re-balancing bounce and already back near lows. 

Aside from $DXY weakness which in my view has mixed effect on other assets, most of the above is very bullish for stocks. That said, we may see more of a shakeout before another advance. 

While pivot status is clear, my read of weekly bars is mixed. SPY and QQQ seem to invite selling (2 small up bars) but DIA and IWM invite buying (2 small down bars). Other mixed signals: TLT weakness invites stock buying, while GLD strength discourages. I read of record VIX shorts, yet VIX has remained below all pivots on daily close since 11/10 with only very mild advances. 

A bullish scenario from here would be IWM recovering its JanP (along with XLF) as other stock indexes advance. If that happens, along with safe havens confirming full risk on, we might want to be back to 100% long or more. A bearish scenario would be more of a shakeout down to Dow JanP and then below. If that happens we can hold existing positions or be a bit less long.

Bottom line - While a range has developed which may go lower, at some point I think we will see a move back up to the top of the range and ideally higher for a significant top. 

Positioning
Usually a dedicated post but mentioned compressing the blog this weekend. 
Heading into the week, portfolio was:
3 IWM, 2 DIA (both from near election)
3 XLF, 1 QQQ (pre & post election)
2 SPY from 1/3
1 XBI from 1/4
12 longs, 120% long, no shorts

1/17 - XLF was the first to break its JanP so -1, IWM -1. By the close wanted to be a bit less long and took off XBI and another XLF, so -4 longs in total leaves 8, thus 80% long. 
1/18 - Not great entry but SMH still flying so back in, 90% long. 
1/19 - No change
1/20 - No change

9 longs, 90%, no shorts

If IWM does not recover its JanP next week that will be the next to reduce further. 

Pivots
USA main indexes - Dow JanP level to watch as support, as well as IWM JanP which acted as resistance on Friday. 

Safe havens - GLD holding above YP, but rejected from 1HP. Personally I don't think GLD will have repeat of 2016 and I'd rather see GLD below long term pivots. If that doesn't happen though, I will respect that strength. Zero hedge is reporting record bond shorts but TLT enjoyed a few days of re-balance buying, then stalled, and quickly back near lows. VIX is staying low for quite a while as XIV soars - this cannot last forever but for now it is very healthy action.

Global indexes - DXY weakness is allowing strength in the global indexes I track. FXI above all pivots and EEM same. INDA 1HP rejection, and currently above YP and JanP could be first to trigger short. RSX is sitting on JanP and could be a buy here; I passed on 1/3-4 move in EWZ and watched it go up since. SHComp is typically for info only as ETFs are low volume, but it is tradable, especially as long; it had a great hold of YP and D200MA last week. Usually I like to have some positions in the global indexes as they often move more both up and down than USA indexes. After playing RSX long in 2016 Q4, long setups didn't look ideal and was already long so didn't rotate. I will be more willing to play global indexes long if DXY breaks its Q1P. 

Currency and commodity - DXY tested Q1P last week and so far holding. I have been massively bullish DXY from mid October last year and with DXY in 96s was calling for well above 100. All that happened, now what? A hold of Q1P should resolve bullish, and even if that goes there is 1HP and YP not far below at 99.97 and 99.25 respectively. DXY is also testing its previous high area of March 2015. If Q1P and previous high 100.39 hold, then easy to stay bullish on DXY. Anything below and situation becomes a bit more mixed - not overtly bearish, but medium term weakness while holding long term strength, thus no edge either way.

Oil via both CL1 and USO is above YP, 1HP and Q1P but below JanP. It may try again soon to clear JanP. This would also support RSX buy. 

Other technicals
Last week I mentioned Average True Range, and how a diminished value on the daily chart usually leads to increased volatility (ie market topping process then a drop). On the weekly charts, though, USA main indexes are not at remarkable levels. In other words, we could easily see more sideways in the bigger picture. 

The other levels to watch here are monthly Bollinger bands. SPY testing the band yet so far remaining inside; DIA staying strong still outside the band; QQQ testing the band; IWM has dropped a bit back inside; VTI looks like SPY. Pushing the band yet remaining inside at some point will invite selling, or very least caps upside. 

Valuation and fundamentals
10MA of 18-19x forward P/E currently 2368-2500, or 4.3% to 10.0% upside on SPX. Citigroup Economic Surprise Index still very strong. 

Sentiment
Multiple bullish extremes reached mid December worked again at identifying a top. We don't necessarily have to see bearish extremes on a pullback low. Most extremes have been worked off without much damage to price.

Timing (Proprietary experimental work in progress model)
January dates published 1/1
1/4 (strong) - 1/3 DXY high
1/6-9 - 1/6 high for SPY, DIA and VTI
1/17-18 - So far pullback low +1 on 1/19 on USA mains, and DXY low on point
1/28 - TBD

 

Total market view

Review
1/7/2017 Total market view: "Bottom line - If indexes are higher then it will be easy to hold. If lower then IWM likely to break its JanP before others and portfolio can come back down to market weight or lower but reducing on those positions."

Result was IWM held JanP three times and there were no adjustments to portfolio. 

Sum
USA indexes continue strong above all pivots. SPY and VTI have had a very moderate reaction lower from JanR1 tag or near tag. IWM has lagged in 2017 thus far, but has held JanP as support 4 trading day this month. Basically, everything is above pivots and not much is at major resistance. 2017 leader QQQ reached Q1R1 but easily lifted above. All this is bullish and one could make a simple case for continuing to hold all longs above monthly pivots. 

Safe havens are still mostly weaker, although GLD closed above its Q1P slightly and currently testing its YP. VIX and XIV are at places where reversals are more likely to happen. In most USA indexes a range has developed which I think favors the sellers. So we could also argue to reduce somewhat and take some gains off the table. This would give more buying power if we saw a dip, but would cost in relative performance if market zoomed higher.

The Pivotal Perspective is not about planning in advance 1 month from now what to do. It is about an ongoing decision making process that leads to a better risk adjusted result. If a safe haven ie GLD reclaims a yearly pivot when it looked like it should been rejected, that is telling us something about the market. If that happens, especially along with VIX / XIV reversal bars, I think the right thing to do is reduce down to market weight at least (ie take gains on 2 units) and possibly down to 80-90% long. 

If everything resolves bullish on Tuesday (ie, stocks higher, GLD YP rejected, no problems from VIX or XIV), then I'll hold for higher targets.

Bottom line
Portfolio is 120% long and there is ongoing decision to hold or reduce. Based on GLD, VIX and XIV and other technicals I am ready to take some gains off the table, but will still be willing to hold long if GLD YP gets clearly rejected next week. 

Positioning
Dedicated post and tag here. Adjustments are mentioned in the daily comments after close. 

Pivots
USA main indexes - All 5 USA mains above all pivots. If we saw a top on 1/6, then it was merely SPX JanR1 and VTI near JanR1. 2 monthly resistance levels is usually a minor trading high in the scheme of things. 

Sectors of note - XLF trouble to higher despite the JPM earnings on Friday. Like IWM it has held JanP a few times, and came close to reaching JanR1 on Friday. Biotechs XBI have done well.

Safe havens - GLD closed above Q1P slightly and testing its YP. Whether this clears or gets rejected is an important message about stock indexes.

Currency and commodities - DXY has falled below its JanP for the second time this month, and the second time has been definitive. Yet a quick drop to near Q1P has recovered. DXY down is allowing global indexes to rally. Anything that holds the Q1P as support in addition to being above YP and 1HP is still longer term bullish. 

Global indexes - Benchmark ACWI is quite strong, and EEM, FXI and INDA have rallied quite sharply up from December lows. EWZ above all pivots all year, and RSX also above all pivots but hasn't done much. SHComp made a short move above all pivots into a 1/9 high, but has already broken JanP and Q1P and now testing YP & 1HP. If any risk asset were to change pivot status in a significantly bearish manner it looks to be SHComp. 

Other technicals
Selling at close high levels and diminishing average true range are signs of distribution. We may see more of a shakeout before going higher. 

Valuation and fundamentals
Moderate positive for the market. If earnings are going up then any dip will be bought.

Sentiment
Extremes reached mid December have effectively halted the rally, but markets have dealt with this in a bullish manner thus far by an extended sideways consolidation. 

Timing (Proprietary experimental work in progress model)
January dates published 1/1
1/4 (strong) - 1/3 DXY high
1/6-9 - 1/6 high for SPY, DIA and VTI
1/17-18 - TBD
1/28

 

Positioning

Last week start

3 IWM, 2 DIA (both from near election)
3 XLF, 1 QQQ (pre & post election)
2 SPY from 1/3
1 XBI from 1/4

12 longs, no shorts = 120% long
Note 8 USA mains, 4 sectors

Adjustments last week
None

Next decision will be whether to take gains and if so what to take. Exits are often trickier than entries. 

Although I cannot complain with positioning and decision to remove hedges 1/3/2017 that were put on IWM 12/12/2016 and return to leverage long 1/3 & 1/4 this year, I have missed or been underweight the better move up in QQQ. DXY weakness combined with risk on has resulted in stronger rally in other developed markets via ETF EFA, and global ETFs I track as well, especially FXI, EEM, and INDA. Oh well, I was short FXI and mentioned INDA in long term charts only to see mixed pivot condition and nix the setup. That said, XBI has been a nice add from 1/4 and only wish I did more. 

* * *

Positioning limits
15 or 150% long, -50% shorts or hedges, 200% max total exposure. 

Currency / commodity positions are not included in this system. 

 

Other technicals - daily closes and average true range

I talked about quarterly and monthly closes at various points on long term charts last year, but daily close levels are also a tell. 

The 12/13/2016 close was 227.76. Thus far the 1/6/2017 price high is 227.75. Not a coincidence!

Now I'm going to put an indicator called Average True Range on the lower panel. This is a measure of 2 day range that includes gaps (so not just intraday high to low). You will notice that this has been lower for only a few days of the last year or so. And those days were key highs in a range. 

These are related concepts because as stocks settle into a range after a healthy move up, there will be selling at the highs of the range (often measured by closes). Also, more likely to have dull action, less volume, and lower ranges.

I have been bullish since election to December, and both times went under 100% long quickly took off hedges & shorts and back up to leverage long. (First reduction wrong and small loss, second reduction gain on both hedges and shorts). Leverage longs have made money as well. But due to what we're seeing above, taking gains and reducing exposure maybe the next best move. 

Safe havens

Sum
VIX below all pivots, yet tagging 11 or reaching into high 10s and seeing reaction up from there. Smart money looks to be selling stocks on lifts with VIX this low. TLT reclaimed JanP early in 2017, but selling from JanR2. GLD is the most interesting story, with stronger rally to YP / Q1P combo. I think this is the key tell for stocks ahead. If GLD rallies above its YP, then that is more bearish for USA stocks and will probably lead to test of DIA JanP. If GLD clearly rejected from YP, then stocks are going up and we'll probably see Dow 2K and higher. 

Charts
Weekly with long term levels only
Daily with long term  medium term
Daily with pivots only and other technicals

TLT
TLT W: Well between YP and YS1. In this case 1HP and 1HS1 are the same levels. 
TLT D: Rally to JanR2, but selling from there. Under Q1P, and YP / 1HP combo.
TLT D: Only 3-4 days of enthusiastic buying since 12/28.
TLT sum: Long term downtrend below all pivots except monthly. Rally above a falling D 50MA did not last, although above a rising 10 and 20. Looks like this should resume lower, although sitting on weekly 200MA is another level to watch as support. 

GLD
GLD W: Test of YP!
GLD D: 1 day fractional close above Q1P, but still right under YP.
GLD D: Unlike TLT, GLD bought significantly more than TLT. above D50MA and nicely rising 10 and 20MAs. 
GLD Sum: Test of YP here! More bullish for stocks for that level to reject. 

GDX
Could be long here with YP & Q1P area holding as support for 3 trading days, and MACD + from 12/29. But not much MA edge and heading into falling D100. Also below 1HP.

VIX
VIX W: Below all pivots, can go lower as 2014 low was 10.3.
VIX D: So far 2016 low support for VIX three times and twice in 2017.
VIX D: All below pivots for 2017, and below all MAs on close since 1/4. 
VIX sum: VIX has reached into 10s at end of Dec 16 and on 1/13, with a tag of 11 even on 1/6. While VIX can go lower - 2014 low was 10.3 - smart money is selling stocks on lifts with VIX this low. 

XIV
XIV W: Approaching 1HR1!
XIV D: Pause but no selling from Q3R1. Reached JanR2. 
XIV sum: Strong and has confirmed long with leverage but at or near place where tops occur. 

USA main indexes

Prior week: "Last week: All USA indexes opened above all pivots. Tech set reached Q1R1; SPX and both NYA & VTI reached JanR1s." 

Last week: All USA mains above all pivots. SPX and VTI near JanR1 tags for the high of the month; RUT holding JanP.

Sum
All USA main indexes above all pivots is bullish. Also bullish for Tech set to be leading and currently above Q1R1. 2016 Q4 winner IWM has lagged in 2017 thus far, but holding JanP on 4 tests. Yet SPY, DIA and VTI trouble to go higher, and it is easy to imagine a test of DIA JanP. 

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 W: No change to big picture or targets, but small up bar with lower close invites selling.
SPY D: Above all pivots since 11/9; the last trading day with close below a monthly pivot was 11/7.
ES H D: Looks bit stronger due to more recent high and above 10 and 20MAs.
ES 1 D: High of the month remains JanR1 near tag (reached on SPX.
SPX set sum: Strong above all pivots and all MAs. But 3rd month into rally and having more trouble going up. 

NDX / QQQ / NQH / NQ1
NDX W: Looking great, and 1HR1 already within range
QQQ D: Maintaining above Q1R1 and above JanR1, relative leader among USA mains in 2017.
NQ H D: Powering up and soon RSI reaching overbought
NQ 1 D: Testing Q1R1.
NDX set: 2017 current USA main index leader, above Q1R1 and all above rising MAs.  

INDU / DIA / YMH / YM1
INDU W: Small red bar invites buying (opposite of SPX). 4 weeks of sideways.
DIA D: Bullish working off of very overbought so far - but could easily test JanP.
YM H D: A shade under MAs, and note RSI divergences from Dec to Jan highs. 
YM 1 D: Not even close to JanR1. 
INDU set: Sideways after big run up can be bullish or bearish depending on point of view. So far between JanP and JanR1 without a test of either. 

RUT / IWM / RJH / RJ1
RUT W: Small up bar invites selling.
IWM D: Has held JanP 4 trading days thus far.
RJ H D: Back above all pivots and MAs, and RSI down to uptrend buy area near 50.
RJ 1 D: Lower daily BB also near JanP, and rising D50 also support. 
RUT set sum: Maintaining gains and holding JanP through 4 tests. 

NYA / VTI
NYA W: Small up bar invites selling.
NYA D: High of month very near JanR1 tag.
VTI D: Above all pivots and MAs.
VTI D: Also high of month near JanR1 tag. 
Broad index sum: Above all pivots and MAs, yet having trouble to go higher. 

Valuation and fundamentals

Thompson Reuters SPX forward P/E almost no change from last week, 17.18 to 17.19. Price didn't change much either, which means earnings estimates are just a bit different. Moving averages continue to climb, and yet the difference between the current value and that moving average is less. 

10MA of 12 month forward P/E = 16.94 (up from 16.88)
10MA of implied SPX earnings = 131.79 (up from 131.12)
10MA of SPX price = 2232.05 (up from 2213)

Current 18x-20x target range = 2381-2646
Current 10MA of 18x-20x target range 2372-2635
% upside to 10MA of 18x-20x target range = 4.2%-15.8% 

*

Citigroup Economic Surprise Index is looking strong. 

Both are moderate positives for the market, although I'm beginning to have doubts about anything higher than 19x. Smart money will gladly leave the remaining 5% on the table to protect themselves against a -20% drop. If I change the target range to 19x, then this means:

current 2514
10MA 2503
% upside to 10MA = 10%

E-wave update

I dabble in Elliott wave. The reasons: I like the basic framework of the way markets move: initial thrust, reaction, acceptance, doubt, euphoria. The reason I don't make it my specialty is that there is always an alternative count and when the pressure is on with money on the line I want something simple. But compare what I have drawn out very roughly months ahead to how things have unfolded and you will see it has worked out pretty well. 

Here is an E-wave post from about a month ago so I don't have to repeat things too much.

SPX Monthly view - W5 in process from 2/2015 lows. In the chart below, up portions in green and down portions in red. 

SPX Weekly view - what W5 will appear as 5 waves up, ideally speaking.

W1 = 2/2/16 bar low to 4/18 bar high
W2 = 4/18 bar high to 6/27 bar low
W3 = in process from 6/27 low, subdividing
w1/W3 = 6/27 low to 8/15 high
w2/W3 = 8/15 high to 11/7 low
w3/W3 = 11/7 low to in process

Wave 3 subdivision of larger wave 3 'should be' the longest and strongest wave. According to this view, top callers are pre-mature here. Strength begets strength as Wall Street drools over tax cuts, stimulus, and money coming out of bonds. This is what euphoria looks like.

But W5 on the monthly could peter out in an ending diagonal, something like this. 

Regardless of which version plays out, the daily view looks to be in wave 5 with a classic W4 pullback in a zig-zag. (This was the same exact pattern that played out on the monthly chart at the 2015 highs to 2/2016 lows!)