In yesterday's post I said be ready for action, and today VIX jumped above the Q2P early in the day. This made everything easy - slap on the 2 hedges I had just covered on SPY and QQQ, and then decide on shorts. While GLD and TLT may yet be the better options, I was more comfortable shorting IWM and XLF due to proximity to levels (IWM near yet below Q2P, and XLF near yet below MayP) and falling MAs to help out. Voila, portfolio from 90% to 50% net long.
Based on DXY analysis earlier on the blog, preferring to hold the global longs without hedging. These may have topped too, but EEM, INDA and KWEB still above all pivots - not the case with 4 out of 5 USA mains.
Now what? One day bear wonder or start of something larger? These kinds of moves are frequently followed by some bounce, but due to SPX YR1 2407 and NDX YR2 4684 - levels I have been pointing out for weeks! - this could / should be the start of something bigger.
The damage - 4 of 5 USA mains broke MayPs - only QQQ remains above. QQQ MayP becomes important support. Also, NYA is already testing Q2P, so another level to watch.
VIX jumped massively all the way to near 1HP again, 15.99. Above that would be very bearish. It would take a big fade to come back under Q2P at 12.48.
XIV topped out on 1HR3 and today broke through YR2 and MayP, near testing Q2P - that's another level to watch. Another huge score for XIV in terms of a signal. The next time XIV is clearly on a major level with RSI extreme, options may be in order.
Lastly one of the less emphasized safe havens, AGG, rallied above its YP for the 2nd time this year. This is not really supposed to happen this year of rising rates and XLF being Wall Street's favorite trade, right? So AGG says more bearish for risk assets with bonds rallying.
If SPY does not recover MayP tomorrow, then there is room to cut longs and hold the hedge. Hedge comes off if recovery of MayP and VIX / XIV also send some confirming message.
SPY, QQQ, IWM, XLF, VIX, XIV and AGG below.
ps - I don't really believe this is a Trump related drop. SPX had reached 18x forward earnings and recent economic data was disappointing. Some profit taking may be in order as well. This is evidenced by the larger drop in the hot trades, QQQ, SMH, EEM despite DXY drop, etc. I kind of agree with Siegel - if Trump is out, Pence is in, and IWM and XLF could be back to highs in in a hurry!
