USA main indexes

Sum
All USA main indexes are testing medium term resistance. 
SPY on Q3R1 and JulR2
QQQ on Q3R1
DIA on JulR1
IWM near tag of JulR1, and cash index shows rejection at 2HR1
NYA and VTI both on Q3R1

Thus far we are seeing a pause not a rejection, but given weekly chart RSIs on QQQ and VTI especially, along with upper Bollinger bands on weekly SPY, DIA, IWM and VTI, a reversal here has decent odds. Bearish concerns would be alleviated with any clear and close above Q3R1s next week.

Also, with all USA main indexes above all pivots and all MAs all with rising slopes, cannot get carried away with any bearishness. 

SPX / SPY / ESU / ES1
SPX W: Looks like it should reach 2HR1 2503.
SPY D: For now, Q3R1 and JulR1 resistance. 
ES U: Look at all the nicely rising moving average lines.
ES 1: Possible reversal bang on on Q3R1 and JulR2, with RSI up to 68.2 at the recent peak.
SPX sum - Healthy uptrend but pause or possible reversal on Q3R1 and JulR2. 

NDX / QQQ / NQU / NQ1
NDX W: Looks like higher levels possible. Watching weekly RSI carefully.
QQQ D: So far no selling at prior high area, but also at Q3R1.
NQU D: In 5% drop, only 10 and 20MA broke and bent; 50MA broke but did not bend; nicely rising D100 near the low, and D200 not seen since early July 2016!
NQ1: So far more like pause not reversal.
NDX sum: Strong uptrend but near prior highs and Q3R1 worth watching for possible reversal. Also watching RSI on weekly chart.
 

INDU / DIA
W: Still doing fine above YR1. 
D: Did not reach Q3R1, and back under JulR1. 
INDU sum: Above all pivots, all MAs rising, above all MAs; JulR1 watching as possible resistance.

RUT / IWM
RUT W: Looks about to get whacked. Not sure how the cash index shows higher high and reversal on Friday but maybe option expiration related.
IWM D: JulR1 near tag and down. Still a more threatening reversal here than the others, below the low of the high bar. 
IWM D: Above all MAs, with all MAs having rising slopes. 
RUT sum: More threatening reversal here, especially the look of the cash index. However, still decent uptrend above all pivots and rising slope MAs so cannot get carried away with any bearishness. 

NYA & VTI
NYA W: Above YR1 is positive but given weekly chart RSI a fade back under the level could happen. Otherwise 2HR1 next level above.
NYA D: Still holding YR1 as support; resistance at Q3R1 and JulR2 like the others. 
VTI W: Decent higher highs above YR1. Doing fine, but look at RSI.
VTI D: Also down from near test of Q3R1.

Valuation and fundamentals

10 week moving average of 18x forward earnings in blue, and SPX in orange. This chart removes 2016 Q4 data so slope of recent moves more clear. Since May, earnings estimates rising with impressive slope. Price has knocked against this a few times on weekly close but not exceeded. It will take a levelling off of earnings to put real selling pressure on the market. Estimate 3 on scale of -5 to +5. 

Citigroup Economic Surprise Index still terrible. It would be interesting to see the global versions, but as far as I know that takes a Bloomberg. Score -4.

Combined estimate:
3x2 (to double weight) = 6
-4
Total 2. 

These measures have argued for more tepid equities, but if profits are increasing and fundamentals improving outside the USA, that rather nicely aligns with current markets. 

Emerging markets

Nothing like doubling the gain on SPY over the first half to get some attention. 

Jeffrey Gundlach has been totally on top of this idea for quite some time. At a conference earlier this year, his idea for one trade was a pair with SPY short and EEM long. This doesn't imply bearishness for SPY; it implies greater bullishness and upside potential for EEM. He has recommended higher weightings of emerging market stocks in portfolios well before this as well.

The chief strategist at Oppenheimer is saying this move could have a long way to go. I completely agree. Emerging markets are very under-owned in portfolios despite China and India being responsible for so much more global GDP growth than USA.

But as you know by now I like to tell the story with charts. Here is a nifty EEM vs SPY comparison. These are all ratio charts, which show EEM vs SPY in one % based measure. 

From 2004
EEM above SPY by 140% at the peak of China's bubble - just to let you know that yes these stocks can outperform significantly. 

From 2010
This decade pretty bad for EEM until recently. Note - this is not saying EEM was down by 50% as an asset class. It is saying EEM lagged SPY by -50%. 

From 2013
Moving to a weekly chart now. USA QE pulverized EEM compared to SPY, and then in 2015 oil crashed. 

From 2014
Less bad but still down. 

From 2015
$USD strength and oil crash worked against EEMs. Still weaker than SPY by -8%.

From 2016
Wow! +15% from beginning of 2016 which included a dive back to zero after the election. This year has made it all back! So really we're talking 6 months into an outperformance of a trend that had been in play since 2007. 

The most interesting thing to me is the current top 10 holdings of EEM. Korean and China tech! Oil weakness won't matter as much. Since everyone already owns Google, Apple, Facebook etc, and comparatively few own Tencent, Alibaba, etc, I am expecting to see pivotal strength for EEM for a considerable period ahead. 

Total market view

REVIEW
7/9/2017 Total market view: "Basically with VIX dropping from 2HP / Q3P, yearly levels threatening break yet recovering, pivot holds or recoveries on SPY, QQQ, DIA, IWM, VTI, VIX and XIV all (!) on 7/7, I'm going with idea of near term bullish resolution. ... Based on safe havens and larger trends for stocks without any recent bullish sentiment extreme, I think ball in bull's court."

Result was that USA indexes broadly up to new highs for SPY and DIA, new price highs for VTI, QQQ up, and other global indexes ripping to new highs for the year.

SUM
USA indexes are healthy uptrends, above all pivots and moving averages; and should go higher before we see a decent trading top. For additional context: daily RSIs on main indexes are not yet overbought, safe havens are weak, and emerging markets are ripping. Further, most sentiment readings are nowhere near a bullish extreme - in fact, the opposite! 

With many participants expecting a correction in Q3, the market may just continue to leave people in the dust. 

Bottom line - Typically, key highs like 3/1/2017 are made with multiple USA indexes on pivot resistance levels, with other technicals showing divergence, safe haven strength, and crowded bullish sentiment. None of that is happening yet. Markets should go higher.

I will think more about possible hedges and ways to lock in gains after that happens and when firmly convinced of a top, not before. 

Positioning
Back to 10 longs on 7/7 was the right idea; could have added further last week but was a little too cautious after seeing the high ISEE. 2 GLDs also profitable (still holding with breakeven stop). Very glad to have decent chunk in INDA and EEM as these likely to have a lot more long term potential. 

PIVOTS
USA main indexes - SPY & DIA should see Q3R1s at minimum. QQQ JulR1 and NYA YR1 levels to watch for this week.

Safe havens - VIX & XIV worked again to confirm buys. TLT and GLD look weak. Despite trying GLD on the YP, below all other pivots and also below all falling moving averages on the daily chart at the time of entry (hence the stop).

Sectors of note - XLF is laggy and maybe first to trim if TLT doesn't drop further this weekend. Otherwise QQQ and SMH worth watching together for tech sector.

Global indexes - The real story in market strength is here. 

Currency and commodity - DXY nearing YS1 at 94.86.

OTHER TECHNICALS
Watching RSIs across timeframes (Q, M, W, D, and then 2H session only for shorter term stuff). Referring to SPY: Q chart RSI *higher than 2014-15, sign of strength; M getting up there at 75.3, approaching 2014-15 highs at 77 and 2007 high of 79; W knocking on overbought too at 69.9, and possible to see some reaction from this area; lastly, D only 61.9 and room to go higher.

FUNDAMENTALS & VALUATION
Nice lift in earnings (well, the 10 week average of forward earnings estimates to be precise) and SPX back to 18x. 

SENTIMENT
Amazingly, more bears than bulls on AAII each of the last 3 weeks! This is just not how markets top out. I am somewhat concerned by the 3rd highest reading of the decade on ISEE last week, but until standard put-call ratios come down and AAII capitulates this is not as much of a worry.

TIMING
Propriety work in progress model that I am still maintaining in bare bones form due to calls like this.

July dates (published 7/2/2017 Total market view)
7/3
7/21

Bias was for 7/3 to be a high and 7/21 another high. 7/3 was a minor trading high for DIA. As of last week: "If my idea correct 7/21 will be another high, ideally higher than 7/3."

Positioning

Came into week:

2 SPY (4/17)
2 XLF (6/28)
2 INDA (7/5)
2 IWM (7/7)
1 QQQ, 1 SMH (7/7)

Adjustments:
7/10: -2 IWM, +2 EEM (whew!)
7/11: +2 GLD
7/12: None
7/13: None
7/14: None

I entered the week with idea of adding leverage on bullish resolution of congestion of the prior week, but seeing the 3rd highest ISEE reading of the decade on 7/11 meant i opted for GLD instead. This position is up but probably stocks would have been better.

Currently 10 longs for 100% plus the 2 GLD so actually 80% net. 

Global indexes

CNBC tends to go on about Dow new highs, but to me the real story here is global stocks, and most especially sizzling China and India. These have been aided by the plunging $USD and Yellen's dove rate hike talk.

I try to keep an eye on these as they are great trading vehicles, but only post occasionally due to time constraints. Still, on this site I've frequently mentioned: ACWI, FXI, EEM, SHComp, KWEB (recent addition), INDA, RSX and EWZ. Let's take a look. 

A more thorough approach would consider the base indexes, as most of these except SHComp are going to have the $USD involved. $DXY has been dropping like a rock and approaching YS1 at 94.86. If this holds then the steam may come out of global indexes, but currency trends seem to persist more than stocks and larger timeframes look terrible so I'm not too worried about DXY strength taking away recent gains from INDA and EEM. 

Everything except SHComp rallied big, and even RSX and EWZ recently back above all pivots. That said RSX and EWZ weekly charts are not in uptrends like the others (RSX high 1/2017, EWZ double top 2/2017 and 5/2017, still well under those highs) so could be considered interesting hedging trades against EEM and INDA longs. RSX and EWZ also impacted by oil which will be something to watch if using those as shorts. 

Bottom line here is that FXI, EEM, KWEB and INDA just had *massive* buying to quickly propel them to convincing new highs. This kind power move outside weekly and daily Bollinger bands doesn't tend to immediately reverse, even if daily RSIs are apporaching overbought. 

PS - Did I mention? INDA position 7/5, EEM 7/10 for 40% of portfolio. 

ACWI
Double top but otherwise all clear for higher levels.

FXI
W: Wow - blast off. This is not the kind of move to immediately reverse.
D: Already at 2HR1!

EEM
W: Another power move up. Should test 2015 highs.
D: Going for YR2, 2HR1 and Q3R2 cluster.

SHComp
OK but still in range. Less zippy.
Daily chart YP hold after 2 minor breaks was definitive.

KWEB
W: Impressive.
D: Tougher reentry setup banging against YR2.

INDA
W: Going up!
D: Already at YR2!

RSX
This had a huge lift as well. 
YP smart money buyers doing very well, and recently back above all pivots. 

EWZ
Also back above W200 and other moving averages, but you cannot really call this an uptrend yet. About sideways for a year. 
Daily chart above all pivots - made it to JulR1.

Safe havens

Sum
Another huge score for VIX and XIV as confirming indicators, with VIX 2HP slam and back under all pivots on 7/7, XIV Q3P exact hold on 7/7 and back above all pivots as of 7/10. Risk on. 

Other safe havens are weak. TLT fractionally below all pivots though may put up fight at D200MA and 2HP. GLD had decent bounce off YP (again) but so far failing at 2HP and falling D200. 

Given VIX and XIV clear confirmations, and TLT below all pivots as of 7/7-11, and GLD below 3/4 pivots 7/3-14, leverage was an option for stock positions. Alas, my one regret of last week is not adding leverage after seeing the extremely high ISEE reading on 7/11.

VIX
VIX W: Another score by the VIX pivots confirming buy with 2HP rejection.
VIX D: Looks like going lower although hard to imagine VIX in 8s. Why not though?

XIV
Beat market to buy on 7/10 above all pivots. Next levels JulR1 then Q3R1 & YR3 above.

TLT
Interesting test of falling D200MA and pivots - 2HP right there near the moving average. Any lower makes it below all pivots and below all MAs except D100. Note D50 turning into resistance as stocks rallied from many of their D50s.

AGG
Doing better above D200 and 2HP, but so far rejection at YP.

GLD
Still holding YP area, but falling D200 and 2HP fail will invite selling next week. Keeping break-even stop on this from buy 7/11.

GDX
4th fail of YP without a definitive move lower. But this time though back above YP for 2 days no decent up bars. Breakdown could be big if GLD goes too.

USA main indexes

Sum
The most important event was that after several weeks of consolidating at yearly resistance levels, these turned into support for a decent launch. SPX YR1, INDU YR1, NDX YR2 all turning into solid support and clear lift-off. Now we can watch for a move to higher targets, starting with SPY, DIA and VTI Q3R1s and then ideally longer term levels at some point in the second half.

Near term levels to watch are NYA YR1, QQQ JulR1, and the VTI close high area. A fade from those may indicate a short hedge on IWM. NYA joining YR1 party would be bullish and confirm high chance of quickly seeing the higher level targets, meaning Q3R1 on SPY, DIA and VTI.

SPX / SPY / ESU / ES1
SPX W: 8th bar above the YR1 and finally a decent launch. 2HR1 2503, YR2 2576. This does kinda look like w5 division of W3 that has been running from 6/2016 fwiw. 
SPY D: Near term target Q3R1 247.03 along with JulR2 just above.
ESU D: Another buy signal on pivots with MACD and nice hold of D50MA and launch. 
ES1 D: Pushing outside the BB sign of strength; that divergence low on 7/11 that fractionally cleared the pivot was interesting tell.S
SPX sum - all looking good here, decent new high with daily RSI not yet overbought. Should reach higher targets starting with Q3R1 and then 2HR1 is above that. 

NDX / QQQ
NDX W: Also lifting above YR2, very bullish. 2HR2 is above 6000.
QQQ D: At JulR1, level to watch.
NDX sum: Watching JulR1 and then if above that should test highs. 
 

COMPQ
Also might be worth watching this level too - COMPQ (broader than N100).

INDU / DIA
INDU W: Look at that YR1 turn into support - no selling pressure for several weeks then blast-off. 
DIA D: Q3R1 higher like SPY.
INDU sum: Should reach higher targets starting with Q3R1.

RUT / IWM
RUT W: Lift above 2HP is good, but still not really getting in gear. 
IWM D: Lift above all pivots bullish, but reluctant rally. Due to wide range of June, JulR1 decently higher and may not tag.
RUT sum: Reluctant, still can be considered as short hedge candidate though we may not see JulR1.

NYA & VTI
NYA W: YR1 11895 only fractionally above - still to watch.
NYA D: Hold of JulP was key on 7/11!
VTI W: Some struggle at YR1 then clear. 
VTI D: Looks more like 2x top from 6/19H.
Sum: NYA YR1 level to watch for next week; VTI appears going for Q3R1 like SPY and DIA.

Valuation and fundamentals

SPX pushed back to the 10 week average of 18x forward earnings, which itself is decently higher than last week. Another level to watch in weeks ahead - clearing 18x may turn the level into support which would be very bullish and open the door to 19x-20x. Scoring this 3 due to increasing earnings on the 10 week average - from 2465 to 2473 in one week is a decent lift.

Citigroup Economic Surprise is still terrible - mild bounce from extreme low levels is right direction. -4.

3*2 = 6
-4
Combined total +2. Stock market is acting stronger than that right now.

Total market view

REVIEW
7/2/2017 Total market view: "This is all important stuff, especially considering all the definitive moves on Dow yearly levels as I have been linking to several times in recent weeks. If safe havens looked stronger and VIX & XIV were flashing trouble, it would be easy to be bearish stocks here. But they aren't, and so I am suspending judgment on the next move for risk. I do think it is possible for a real pullback (ie SPX -5% or more) to be already underway, but markets may just gap above all these levels on Monday instead."

Sure enough Monday 7/3 DIA rallied above its YR1, only to both break and recover in the days following.

SUM
I have been mostly skeptical of the market the last several weeks. Why?
Pivots: Dow yearly R1, and historical tendency to make key turns from these levels.
Pivots, safe havens: Strength in TLT and GLD from mid May.
Other technicals: USA index weekly chart RSI divergence highs end of May, along with daily charts reaching overbought levels.
Fundamentals - Plunging Citigroup Economic Surprise Index.
Timing - Weaker momentum call from 6/8 into July played out, but only tech and having its -5% pullback while SPY, DIA and IWM have been firm.

So far there have been three trading days where we seemed to have the start of serious selling from Dow YR1. Here's the cash index:

And yet these have been followed by 3 immediate (or nearly so) recoveries. 

So let's consider what has happened:
Pivots: So far Dow YR1 not turning into resistance - still could but not yet.
Pivots, safe havens: TLT and GLD plunging!
Other technicals: Overbought conditions worked off with minimum of price damage; trends still very intact even and especially tech stocks.
Valuation and fundamentals: Still a headwind.
Sentiment: No recent extremes, but a lot of correction talk out there.
Timing: Volatility cycles heading this way soon, but near term I 'think' is a relief of recent weakness. More on that later.

Basically with VIX dropping from 2HP / Q3P, yearly levels threatening break yet recovering, pivot holds or recoveries on SPY, QQQ, DIA, IWM, VTI, VIX and XIV all (!) on 7/7, I'm going with idea of near term bullish resolution. 

Bottom line - if markets higher on Monday then we'll see SPY, VTI and XIV above JulPs, a very bullish configuration to be above all pivots and MAs. QQQ will likely continue to lift above its Q3P as well. If bearish, then another rejection back towards 7/6 lows. Based on safe havens and larger trends for stocks without any recent bullish sentiment extreme, I think ball in bull's court.

Positioning
Back to 100% net long with fewer global stocks, added XLF for first time in months late June, and back into both tech and small caps per last rotation. May go further long with bullish resolution on Monday.

PIVOTS
USA main indexes - Still some concerns but cannot argue with SPY hold of near test Q3P, QQQ Q3P recovery, DIA JulP hold, IWM 2HP / Q3P hold and JulP clear, and VTI Q3P hold.

Safe havens - Add to that VIX 2HP / Q3P rejection and XIV Q3P hold. Other safe havens look terrible.

Sectors of note - SMH 2HP and D100MA on the low! Again and again market showing preference for information over oil. Despite TSLA's recent plunge, enough people have seen these cars driving around to see writing on wall for oil.

Global indexes - INDA and SHComp the leaders above all pivots. EEM, FXI, KWEB above all pivots except monthly (like SPY currently). RSX and EWZ weaker, both under 2HPs and Q3Ps.

Currency and commodity - Oil had rebalancing move for 1 week but quickly giving back gains. XLE even worse. DXY stabilizing but still under all pivots. It would take a move above Q3P 97.47 to really start thinking about an uptrend, though chance of key low increases if we see YS1 at 94.86.

OTHER TECHNICALS
QQQ and SMH both just tagged weekly 20MAs the first time since 11/2016, and 6/2016 for SMH! These are rising with healthy slope. Bounce more likely, although also possible to make lower high and then have another drop.

VALUATION AND FUNDAMENTALS
Check out my smoothed 10 week MA of forward P/E and how SPX has tagged and retreated three times. Fundamentals still not supporting. 

Also - will we see an inverted yield curve before the next recession? Maybe not!

SENTIMENT
No recent extremes but several blogs (including mine i guess) seem to be chatting up summer correction idea. 

TIMING
Propriety work in progress model that I am still maintaining in bare bones form due to calls like this.

July dates (published 7/2/2017 Total market view)
"7/3 - looks up for risk. 
7/21"

Wow, another one already. 7/3 was up and so far the high of the month for all 5 USA main indexes thus far. And *the current high* for DIA.
If my idea correct 7/21 will be another high, ideally higher than 7/3.

Will the yield curve invert for the next recession?

The yield curve has 'inverted' (10 year yields less than 2-year yields) ahead of every recession in the past 40 years. No inversion yet so no recession worries. Convincing, right? 

Without even starting into the statistical point about N = 5, I think we should unpack what an inverted curve is about and how likely it is to serve as a warning this time. Is it different this time? 

An inverted yield curve means the 2 year yield is above the 10 year yield. Typically, investors want more yield for taking duration risk and locking up capital for longer periods of time. So most of the time, the 10 year yield is well above the 2 year yield. But when FOMC seeing inflation and a hot economy starts raising rates, and the short end follows. At some point smart money sees writing on the wall in stocks and want to lock in gains, demand for long term bonds increases, pushing yields down. So demand for safe havens after a period of rising short term rates is the real story in the inverted yield curve.

Mostly I agree with this. I track safe havens carefully and constantly factor them into analysis. Despite risk-parity machinations, in general I think strong safe haven moves tend to be bearish for stocks. 

However, the elephant in the room is the massive global central bank QE programs in play since 2008 and crucially, their tapering and unwind. This creates a significant supply issue. We saw that in recent weeks - as ECB hinted at QE tapering, German and other EU bond yields jumped. This relieved pressure on US bond yields as well, with one of the biggest two week jumps of the year. This was nothing to do with safe haven demand or fundamentals - only the idea (not even the actuality yet) that a big force pushing yields down would start to relent.

In that environment, why should we expect to see an inverted yield curve ahead of the next recession? It really doesn't make any sense at all, and yet I have heard this phrase repeated several times in recent weeks from otherwise savvy commentators. Either I am missing something, or they aren't thinking this through.

*

I don't have the math or economics training to properly sketch this out, but here goes:

Rising interest rates increase debt servicing
This is OK as long as income growth exceeds the cost of credit

Total debt + cost of servicing / Total income + income gains
Total debt * rate of change in cost of servicing / Total income * rate of change in income gains

The real issue is if debt costs go up faster than income gains, causing drivers of any economic engine attempting to not take on more debt, to slam on the brakes.

So we have a couple factors at play here - the increase on both sides (debt cost and income gains) and the magnitude and speed of each move.

The most benign environment for stocks is a slow and steady rise in rates, with an even healthier growth rate. This is not a problem at all.

The worst environment would a be rapidly rising increase in rates, with slowing growth in income. This will be a negative spiral. Basically, expenditures go up while income is not going up fast enough to cover the difference. The only choice here is to take on more debt - not optimal when debt costs are already increasing - or cut other costs. One assumes the party would seek more income if it could, and in a macro perspective, is already operating at maximum income.

If the spiral was bad enough - rising debt cost more than offsetting gains in income - why wouldn't resulting cutbacks and slowing growth lead to higher chance of recession? And in this scenario, would the 10 year yield be below the 2 year? Maybe not, especially if global central banks are ending QE and starting to unwind balance sheets. I think the market gets this, especially in the light of indexes holding up quite well in recent weeks with a flattening yield curve! If the market was concerned about inversion, should it not have retreated further when the curve was flattening? But it didn't! 

 Considering TNX went nowhere for 7 months, I don't think we are at scenario b quiet yet. At what level on the TNX, or steepening of the curve, be viewed negatively compared to global income gains? I don't know, which is why I just rely on pivots and technicals to show me the trends. 

Just thought this was an interesting item to consider given I have seen the "yield curve inverts before a recession" several times in recent weeks. 

Positioning

Came into week:

2 EEM (3/13 & 4/3)
2 SPY (4/17)
4 SPY (4/24, 5/23)
1 USO (6/26)
2 XLF (6/28)

-1 SMH short 6/26)
-2 FXI short hedges (6/29)

And had said ready to cut SMH and USO.

Adjustments:
7/5: +2 INDA
7/6 open: 2 UVXY hedges
7/6: -2 EEM, -4 SPY, +1 UVXY
7/7: -1 UXVY, +2 IWM, +1 QQQ, +1 SMH

So, the UVXY hedge worked great on the big down day 7/6 and was a savvy move considering everything (stocks, bonds gold) was red. Took gains on close on 1 unit since also cutting exposure, and the other early 7/7 as XIV bounced from Q2P and VIX fell below 2HP. So that was smart. 

However - and yet another false breaks in 2017 which are trying my patience - again cost to go defensive! What were the reasons to reduce on 7/6? Oh, only selling from yearly levels on 4 (!) of 5 USA main indexes and VIX above a long term pivot for the first time since November 2016! Oh never mind, bulls roaring back the next day. There were several buy choices and opted for mix of tech (first touches of weekly 20MAs in months, correction maybe over; and IWM, pivot leader compared to tech. 

100% long, may add further with bullish resolution this week. 

2 SPY (4/17)
2 XLF (6/28)
2 INDA (7/5)
2 IWM (7/7)
1 QQQ, 1 SMH (7/7)

*

Long term investors can do this analysis on weekly charts using yearly, half-year and quarterly levels only. More about this soon.

*

Positioning information
1 position represents 10% of capital.
Limits: 15 or 150% long, -50% shorts, hedges or safe havens, 200% max total exposure.
Currency & commodity positions are not included in this system.

Safe havens

Sum
Despite the VIX launch on 7/6 above 2HP / Q3P / JulP and slightly above its D200MA, the next day right back down to finish below all pivots again. At some point VIX will not reverse so quickly but as long as this happens I'll keep buying back in stocks. But at the same time, I will continue to take defensive action when VIX or XIV sounds alarm. 

All other safe havens - TLT, AGG, GLD, GDX - look very weak. All four below all pivots except GLD, still above its YP. Most below MAs as well. Weaker safe havens tends to be bullish for risk assets. If XIV can lift above its JulP next week that would help confirm bullish upside resolution for stocks. 

VIX
W: Test of long term pivots and then falling back under levels tend to be the best areas for stock buys. 
D: Friday really quite bullish move for stocks according to VIX. It could have gone the other way and launched above the D200 heading to 15 area. 
VIX: While volatility picking up into quarter end and new Q3, so far test of 2HP / Q3P and D200MA resolving in bullish fashion.
Note: Not shown are VXN, VXD and RVX. VXN still above 2HP/Q3P, and the others still above JulPs. 

XIV
D: Despite smash from JulP, held Q3P for healthy bounce. Let's see if this confirms upside next week. 

VXX / UVXY (UVXY is 2x version)
VXX D: Not a long term hold! First time above a pivot since April. Thought worth a shot. Did nicely to hedge portfolio on 7/6. Had to scram early on remaining unit 7/7 with VIX falling back under 2HP. Note setup: above pivot, above 2 MAs (not really rising slope though) and MACD recent positive. Chance for gain despite relentless downtrend. At some point, this is going to skyrocket.

TLT
W: YP rejection and fell through 2HP. Bearish! 
D: Under all pivots, and back under falling D200 as well. Path of least resistance is down. 

AGG
Below all pivots and MAs! 

GLD
W: Below 2HP, testing YP again. Despite being above both long term levels for most of the first half, GLD did not reach long term resistance. This kind of pivot failure only becomes clear in hindsight, but adds to bearish bias. 
D: Massive gap down to start Q3. HArd to chase with RSI so close to oversold. But below all MAs, and just a little lower would look like massive breakdown below all pivots. 

GDX
Lower and lower highs; D200 fail; 3rd YP breakdown, below all pivots and MAs. Could fall off cliff and wishing short. 

USA main indexes

Sum
While there are still some concerns - weely chart RSI divergence near highs, NDX YR2, NYA/VTI YR1; given that INDU is holding its YR1 as support despite 3 different days of selling from the level, SPX holding above YR1 & 3/1 highs, and IWM holding its 2HP / Q3P and launching above all pivots, I give edge to bulls. 

It would not take much to resolve everything to upside for SPX (ie above all pivots and MAs), VTI (ditto) to join DIA and IWM already there. QQQ will have more work to do to reclaim this status and if higher next week JulP is next area to watch.

SPX / SPY / ESU / ES1
SPX W: Continues to hold above YR1 as support. 
SPY D: Despite 1 day selling from JulP and break of YR1, came roaring back. JulP still resistance.
ESU D: Below falling 10 and 20MA, above rising 50, 100, 200. Above 3 of 4 pivots; any higher resolves this nicely to upside.
ES1 D: This looks like backtest of 3/1 high area - bullish response so far!
SPX sum: YR1 holding as support, above all pivots except monthly. Any higher and all systems go - above all pivots & MAs. Just cannot be too bearish when YR1 doesn't break and near test of Q3P holds. 

NDX / QQQ / NQU / NQ1
NDX W: Just under YR2.
QQQ D: Reclaimed Q3P for the second time, but also on YR2.
NQU: If higher then test of JulP and MAs.
NQ1: Nice BB divergence low on 7/6.
NDX sum: Still under YR2 and if that clears then test at JulP and 20 & 50MAs.

INDU / DIA / YMU
INDU W: Just above YR1 but doesn't convincing. 
DIA D: Better from this angle - held JulP. 3rd day of selling below YR1 but no damage.
YMU: Staying firm, above all pivots and MAs.
INDU Sum: 3 different days of selling from YR1 but 3 comebacks so far. Maintaining above all pivots and MAs. 

RUT / IWM
RUT W: Held 2HP! First touch of long term support since election.
IWM D: 1 day more held 2HP & Q3P and lifted above JulP!

NYA & VTI
NYA W: This looks more ominous to me. Weekly divergence, weak up and selling from YR1 test. 
VTI D: Several days of selling from YR1, and still below. Held Q3P but still below JulP.

Valuation and fundamentals

From this view, it is clear that SPX reached 18x forward earnings and took a breather. This is a bit less strong than last week since the slope just evened out, with the 10 week moving average dropping slightly.

Meanwhile Economic Surprise ticks up from extreme low levels. Still pretty bad though. 

Rough estimate of scoring = 2 for earnings and -4 for valuation. This is a drop in earnings (due to slope of P/E leveling off) and slight increase for fundamentals (due to uptick). Earnings get double weighted so:

2x2 = 4
-4
Combined score = 0 on scale of -15 to +15.

This model has pointed to sideways market for several weeks now, and this is how it has played out. Before double weighting the earnings, fundamentals led to more bearish conclusions in May which did not work as well. 

Definitive moves so far for 2017 2H

Often definitive moves begin near the end of quarters and beginning of new ones. 

This is a list of a few recent examples - I can go on.

2017 Q2: TLT rally on 4/3, lifting above a QP for the first time in months; result was best move up for quite some time.

2017 Q1: USA indexes opening above all pivots despite mild pullback into year end; result melt up for Q1.

2016 Q4: While stocks had a bit of a pullback before the election, TLT and GLD both going straight down with TLT Q4P rejection on 10/3 (first day of quarter) and GLD a gap down; a lot more to this move.

2016 Q3: Indexes back above pivots from the Brexit test; 4 of 5 USA main indexes back above all pivots on 7/1 after just recently testing major levels (SPY, DIA, QQQ, and VTI YPs); result huge rally for the quarter.

Etc.

So what are we seeing thus far?

Most stocks have had a mild choppy pullback. VIX perked up then dropped. While it is certainly possible that VIX may continue higher in Q3, the real definitive move has been longer during interest rates up, ie TLT down, and GLD down. 

Despite rising rate fears, I think this is bullish for stocks. A flattening yield curve would be much worse. Stocks may drop on rising rates at some point, but when rates are sideways for 6 months you cannot really say the pace is too fast. So if safe havens are dropping hard, I'm considering a more bullish move for stocks ahead.

TLT & AGG below all pivots after 7/7 close
GLD below 2HP for the first time in months and just a bit above YP
Meanwhile stock indexes seem to have normal pullbacks in uptrends

Weekly pullback

Without getting into the nuances of E-wave, let's just consider the last 3 major pullbacks SPY has experienced since the 2016 lows.

Those amount of points projected from highs range from 2324 to 2374, or a 3.2-5.3% pullback. This is very doable and normal given the run up over the last year or so.

That said, if VIX falls back under its 2HP / Q3P combo and major indexes reclaim levels tomorrow, I'll have to be buying in.

Total market view

REVIEW
6/24/2017 Total market view: " I thought market was very ripe to see a drop from Dow YR1, especially considering valuation and fundamental concerns, but so far that hasn't happened. I remain watchful and wary, but thus far any defensive move has not paid. ... Soon heading into the second half which means the most change in pivots other than the new year - new second half (2H), third quarter (Q3) and of course July levels for pivots, resistance and support. Often definitive moves begin near the start of quarters."

Last week DIA YR1 started to look like resistance for 3 of the last 4 trading days. 

Sum
4 of 5 USA main indexes are very near yearly resistance levels:
SPY YR1, testing with SPY still a bit above
QQQ YR2, QQQ fractionally below
DIA YR1, DIA fractionally below
VTI YR1, a bit below

This is all important stuff, especially considering all the definitive moves on Dow yearly levels as I have been linking to several times in recent weeks. If safe havens looked stronger and VIX & XIV were flashing trouble, it would be easy to be bearish stocks here. But they aren't, and so I am suspending judgment on the next move for risk. I do think it is possible for a real pullback (ie SPX -5% or more) to be already underway, but markets may just gap above all these levels on Monday instead. 

Bottom line
New 2H, Q3 and July pivots in play for Monday, and as mentioned already, often definitive moves begin near the end of quarters or beginning of new ones. If bullish scenario for risk, I'll be out of EEM hedges via FXI shorts and possibly back in something else, or short gold. If bearish for risk, then may cut some SPY if the YR1 fails and also below some other pivot. 

Positioning
Had a fake-out move last week when adding longs 6/28 but damage not too bad considering the 6/26 USO long, SMH short, and 6/28 XLF longs. Only dings were the beta move on SPY, IWM tight stop out, and the morning gap on EEM since hedged out again on FXI early. Currently 80% net long; also will have to decide about the counter-trend plays on USO and SMH which caught the re-balancing idea. I may take gains off early. 

PIVOTS
Since only yearly levels valid and new 2H, Q3 and July pivots not in play yet, ran through Q, M and weekly charts with those yearly levels only this weekend.

USA mains indexes: All about Dow 21350. 

Safe havens: TLT, GLD and GDX look ready to drop. VIX and XIV some divergence, but still supportive of risk. 

Sectors: Can hold SMH short below YR1. Otherwise no strong opinions here.

Global indexes: SHComp surprisingly decent, FXI on YR1, INDA also possible re-entry long. Others in congestion likely avoid.

OTHER TECHNICALS
Consider the basic long term bull case based on charts and trends, and the bear case based on global QE wind-down.

VALUATION AND FUNDAMENTALS
Earnings still improving, but the 18x level acting as resistance several times. If economic reports start improving, it will be summer rally and safe haven melt-down.

SENTIMENT
No recent extremes.

TIMING
Huge scores on some recent timing calls - one day special market slam, turn dates and larger cycle all delivered. Here's the write up.

July dates
7/3 - looks up for risk
7/21

Global indexes

I tend to ignore Europe just because most of the time it is correlated, and then you have to factor in currency. But I like tracking other stocks because of the potential for larger percentage moves. Several of these have had huge moves both up and down in the last few years. 

Sum
ACWI: looks fine
FXI: At YR1, possible hedge against EEM based on this level. Also at multi-year Fib.
EEM: Better than FXI, also at key Fib.
KWEB: Selling at YR2 and monthly chart vulernable to more drop. Avoid for now.
SHComp: Charts look fin.
INDA: Considering on long side again.
RSX & EWZ: Both in congestion zones on long term charts, but still above YPs. Likely better choices on long side.
 

ACWI (benchmark)
Q: Top of BB may have a reaction lower, but still looks like strong trend and lots of potential for up.
M: Small red bar, buyers may jump right back in. Weak selling with RSI near 70.
W: Between yearly levels.
ACWI sum: Global index idea still looks good per this benchmark.

FXI
Q: Above flat-ish MAs, weaker lower high. Could go either way.
M: Not much edge on direction here but 50% of 2015 drop to 2016 low is it so far.
W: 3 weeks of selling at YR1. 
FXI sum: Long term charts seem like they could go either way, but weekly pivot chart showing selling from YR1 makes this more bearish.

EEM
Q: At 61% multi year Fib!
M: Same Fib here, weak up - pullback easily possible.
W: Between levels.
EEM sum: I think still long term potential for up, and looks better than FXI. At key Fib and smaller up monthly chart is a test. 

KWEB
M: A reason I locked in gains is that massive wick on monthly bar totally outside the BB.
W: Clear selling at YR2 for several weeks. 
KWEB: Still look this idea - but for now this is avoid. 

SHComp
Q: Not too bad, above all MAs except 10MA, weak selling with buyers stepping in. Could rally.
M: Room to rally.
W: YP held despite several times it could have broken. 
SHComp: I don't trade this too often but charts look fine here.
 

INDA
Q: Currency issues seem to have prevented a new high. India indexes are much higher than 2015 tops. 
M: This looks more to me like pause in uptrend rather than reversal, but needs to stay above the last month's close for this judgment to maintain.
W: Working off RSI OB in healthy fashion. Long consideration.

RSX
Q: Congestion, below falling 20, above rising 10. 
M: Congestion, below falling 50, above rising 20.
W: Held the YP! 
RSX sum: Probably will open below 2HP and Q3P despite bounce off YP. Congestion better to avoid until more clues on which direction is the larger move. 

EWZ
Q: Below falling 20MA, above 10MA.
M: Below falling 50MA, above rising 20MA.
W: Between levels, partially due to very wide 2016 range. 
EWZ sum: Not much edge here.

Positioning

Entered week 80% long after taking gains on QQQ and KWEB on 6/20. 

Current
2 EEM (3/13 & 4/3)
2 SPY (4/17)
4 SPY (4/24 & 5/23)

Adjustments
6/26: 1 USO long, 1 SMH short (both of these fantastic moves!)
6/27: 2 FXI short hedges
6/28: 2 XLF, 2 IWM with tight stop, cut FXI
6/29: -IWM stopped out, 2 FXI short hedges again
6/30: None

Current
2 EEM (3/13 & 4/3)
2 SPY (4/17)
4 SPY (4/24, 5/23)
1 USO (6/26)
2 XLF (6/28)

-1 SMH short 6/26)
-2 FXI short hedges (6/29)

80% net

Positioning information
1 position represents 10% of capital.
Limits: 15 or 150% long, -50% shorts, hedges or safe havens, 200% max total exposure.
Currency & commodity positions are not included in this system.