To set the stage for this post, I cannot claim the huge out-performance I have demonstrated in other quarters because I didn't rotate into tech and global indexes soon enough in Q1. But the portfolio has kept up with benchmark SPY and had some nice rotations out of heavy long IWM, maintaining XLF overweight until last week, jumping in INDA and EEM before recent pops.
The real point of this post is that I've been largely bullish USA main indexes in 2017, but at the end of February pointed to valuation concerns; and since March 1 mentioned expectation of "a decent top" on SPY or DIA YR1 areas. It turned out SPY YR1 (or near enough tag to count, as related ES1 contract was within 2.5 points). Also as expected, the real damage didn't happen until after a high test.
2/25 Blog post: SPX nearing longstanding valuation target
2/26 Total market view: "Price may continue to increase based on increasing earnings, but ultimately I think the markets will make a significant top with SPX in 18x-19x range."
3/1 Daily: "Based on VIX and other technicals, I think SPY YR1 or max DIA YR1 will be a decent top. That doesn't mean the market goes straight down. Usually the first reaction off a high is not the big drop."
3/2 Daily: "When I talk of markets "ringing the bell", it is days like this. ... this has many of the configurations of a classic top. What we don't really have yet is divergence on technicals, retests, and most importantly, more indexes on more than monthly levels, so this may yet still play out."
3/4 Valuation and fundamentals: "High of the week was SPX 2400. Basically the valuation target zone I have been mentioning since last August shifting over to Thomson numbers from WSJ data has been tagged."
3/4 USA main indexes: "SPX set sum - Major resistance cluster of YR1, 1HR2 and Q1R2 essentially reached and so far rejection. But momentum has been so strong that a test of this area more likely than an immediate big drop."
3/5 Total market view: "The most likely scenario from here is a consolidation or mild pullback for stock indexes (if they aren't going higher already) which then is bought and more indexes test key levels."
3/6 Daily: "But after this mini pullback completes, stage is set for high retest of sorts with major divergence, and this has potential to be a very key top."
3/7 Daily: "So far, top calls near 3/1 & 3/2 are playing out, but decline has been a creeper move. On the daily charts it looks like we could easily see a high retest of sorts. Zooming out to weekly or monthly charts, however, the drop looks more threatening, or at very least suggests minimal upside from here."
3/12 Total market view: "... there are significant factors which I think will limit upside ahead. First, monthly Bollinger bands on the USA main indexes. SPY and VTI have dropped back inside monthly Bollinger bands after being outside the bands in February. Once an index drops back inside the band, the band is more likely to act as resistance going forward. While QQQ and DIA remain outside monthly bands, this is fairly rare and at some point even a profit taking urge or other event will drop the price back in the band. Second, valuation has reached 17.99 per the current week's data and tagged the 10MA of 18x forward earnings (currently 2396). The moving average is still increasing which is a good sign, but I think the market may see some professional selling at this multiple. Third, the next visit to highs (should that happen) will likely involve RSI divergence on daily chart. Fourth, if the market can revisit highs or go higher, then major resistance lies on the SPY set (already tagged), DIA and VTI, which will all run into YR1 1HR2 Q1R2 clusters on any such move."
3/18 Valuation and fundamentals: "Sum - I consider the market fully valued here. We may see a professional selling reaction from 18x forward earnings and so far it has paused the rally when seemingly nothing else could."
3/18 USA main indexes: "However, market is pausing at SPX set cluster of YR1 / 1HR2 / Q1R2 resistance. At this point I think sideways or down is more likely that blast through..."
3/19 Safe havens: "VIX and XIV are still supportive of stocks. Levels to watch are move from MarS1 and YR2 respectively. XIV slightly above YR2 currently but "looks like" it may fade - please note the 11/3-4 XIV & stock index low was a fantastic tell. I always view tests of yearly levels as a big deal and the more things that say the same thing the better the signal."
Note: XIV broke YR2 in first hour of trading 3/21.
3/19 Total market view: "Upside for stocks likely limited, but pullbacks will be bought. This has been the view all of March. Yet portfolio is back to 100% net long via 11 longs and 1 short hedge. If next week plays out more bearish I may reduce to 70-80% long via XLF or other exit, or hedge."
3/19 Total market view: "I didn't do a full Market top checklist post this week, but the difference between 3/20 week and 3/13 week is that now there is more divergence on daily RSIs and highs have been tested on SPY with lower highs on DIA. Also, more indexes have reached yearly levels - XIV YR2, EEM YR1, INDA above YR1."