Several USA mains close to testing key levels as safe havens continue to power up.
As these stock indexes test support, there are several things that could happen. Think of it like approaching resistance but in reverse:
a) plunge through, most bearish
b) pause or weak bounce then break, also bearish
c) decent bounce then back down, mixed
e) hold for key low, bullish
e) break that looks bearish, then recovery for bullish hold (this one is most pesky)
Right now we can focus our attention on SPX set and VIX because these will likely decide the market. SPX and SPY tagged the Q2P exact on 4/11 and are both back down near the level on 4/12. ES1 continuous contract also tagged exact; ESM was a few points shy.
Likewise VIX tagged its 1HP at 15.99 but closed below, with RSI at the highest level since the election. I don't have a backtest on this, but I am quite sure that buying with VIX RSI at overbought gives far better returns than buying with VIX low - in a bull market that is. But VIX above this level would be quite bearish for stocks in my view.
GLD and TLT strength is very concerning for any stock longs. If I believed these, I'd say VIX is about to move above 15.99 and SPX set break its Q2Ps.
Portfolio -
SMH broke Q2P, have to cut; I did see the monthly pivot break but looked inconclusive, the next day above Q2P support, today break.
EEM holding monthly pivot for 2 days, one of the strongest asset classes, covering hedges.
Holding IWM shorts, although position thus far has cost despite being right idea to lessen long exposure last week.
Putting QQQ hedge back on, valid below the AprP.
60% net long.
Starting in Q3 or whenever is next appropriate, here is change in the portfolio long/short approach that once I think about it seems rather obvious. What has convinced me is the relatively strength of GLD, VIX and TLT vs IWM and EEM short hedges. I think from now on I will not recommend any uncorrelated hedges and focus more on safe haven longs and count them in the same way as short hedges. Originally I was trying to keep the portfolio tracking as a rough guide to my opinion of the strength of risk assets, and also limit the number of potential components of that portfolio. But it is often easier to make money on safe havens than shorts, so this approach was misguided. I will spell this out more in a blog post this weekend.
For now keep it very simple - If SPX set hold Q2P, if that happens, is bullish. VIX staying under 2HP is also bullish for risk assets. Anything lower for SPX set, or higher for VIX, is trouble.
SPX 2336
SPY 233.31
ESM 2329
ES1 2332
VIX 15.99!
SPY, ESM and VIX below.
