Since the end of April The Pivotal Perspective has repeatedly pointed out the importance of SPX YR1 and NDX YR2. The last few weeks I have said markets are "a toss up" referring to whether the indexes can crack these levels. As it turned out, NDX has briefly exceeded YR2 (for 2-3 days), but SPX has not.
While session was again in tight range, after hours is down decently and this may "look like" SPX YR1 rejection on Wednesday.
Trump may get the headlines but let's face it financial news media will never write "Selling as market reaches P/E of 18x forward earnings on key index" or "Fundamentals recently disappointing, 2 weeks later market reacts."
In fact, the last three Total market views have said slim chance of SPX powering up through YR1 simply based on forward valuation and the Citigroup Economic Surprise Index. Start with this one from 5/14/2017 , then click the tag and you'll see I've been saying this all month.
But what is looking most severely bearish is the $DXY. This was also noted in the recent Total market view, and in the two trading days since this index has had a decisive rejection of the YP and D200MA which just happened to be about the same level. If time permits I will post on the blog shortly, but based on Yearly Pivot Promise DXY is now targeting 96.30 minimum and more likely 94.86. You are likely reading these targets here first.
This means current global overweight may do OK even if stocks drop, and we can consider GLD / GDX as a portfolio trade. GLD held 1HP on 5/9-10, recovered Q2P 5/11, and has since bounced the last 3 days. In this respect entry is late. But GDX was under Q2P today with no decent buy signal - we might get one tomorrow.
Or 2017 laggards XLF / IYF, or IWM could be used as short hedges - XLF below Q2P throughout the quarter, and IWM may break Q2P on Wednesday.
I cannot say session SPY was a screaming sell at close today - another pause not rejection. Only XIV - again! - gave the best signal to take a position (as it did 11/4/2016 and for that matter, 1/3/2017 risk on, 4/6 risk off, 4/24 risk on).
If markets are dropping on idea of Trump impeachment give me a break - Republicans are unlikely to do this, so Dems will have to win 2018 first. Still, as noted above, the real reason may simply be valuation and fundamentals. And OK, probably a bit more trouble to get that tax cut passed.
Remember 2017 is not the Trump trade - not at all, IWM and XLF nearly flat on the year - but money seeking global growth, and it is finding that in technology, Europe and emerging markets. Just note performance of India small caps SCIF, China tech KWEB, India INDA, Emerging markets EEM, EFA, even some more obscure names like Spain, Poland - and of course USA large cap tech QQQ. In fact what seems most likely is Trump trades XLF and IWM leading down.
A hedge fund with a futures account should have already taken meaningful action based on SPX set YR1. There are typically only a handful of trading days in the year bumping up against yearly levels, and these are the times to be on full alert. The rest of us will have to be ready for action tomorrow.
SPX, SPY, XIV below.
