11/6 Total market view: "Bottom line - Trouble alert from 10/27 was quite correct. The conditions to lift that trouble alert will be a VIX rejection of a pivot with clear move below the level. Right now VIX is above its 2HP and not yet at its higher YP. Either we need to see a move below 2HP, or higher to YP and rejection from there. Still I think it is better to be cautious with any long attempts with VIX above 2HP.
I will start sounding more bullish on the market when we see Tech set recover above its Q4P (QQQ 114.83), RUT set recover its YP (IWM 116.23), NYA above its YP (10302), and then SPX above Q4S1, VTI above Q4S1, all with VIX and XIV constructive for risk. Until then, cash on sidelines is quite fine."
Result was the whole list of bullish conditions happened the next trading day, and I noted this in SPY daily comment: "Everyone back in the pool! ... Everything checks out - Tech jumped above its Q4P, RUT/IWM back above YP, NYA huge jump above its YP; SPX & VTI above Q4S1, and DIA amazingly above all pivots! VIX confirmed with decent looking reversal bar below the 2HP, and XIV had huge hold of YP as well."
11/9 SPY Daily: "So, DIA started fractionally below the Q4P and jumped above in the first 15 minutes. VIX started a bit above 2HP and collapsed all day. The Pivotal Perspective is clear. We don't know what will happen tomorrow, but for now, the markets are quite fine."
What a week. But let's keep it as simple as we can. 4 of 5 USA mains are above all pivots (QQQ lagging, below NovP). 2 of those have cleared YR1s, which were resistance from August on. At the same time, safe havens TLT and GLD are collapsing while both VIX and XIV have said all clear from 11/7 on. This is all very bullish and must be respected no matter what you think of upcoming politics.
If you didn't adjust 11/7-9, or wanted to let dust settle a bit, or didn't want to buy the news, then positioning could be tougher from here. Yet as long as VIX remains under all pivots, and we don't see rejections from USA main index YR1s, then it is right to be more long. If we do see another VIX move above Q4P, or QQQ breaking Q4P with other YR1 rejections, then we can try to play that move or simply wait for the next good looking setup. It would be nice if that were a decent looking pullback on leaders, but the market is not often nice.
Basic bullish scenario from here is DIA and IWM staying above YR1s, QQQ holding Q4P, and a weak bounce or lower on safe havens. Basic bearish move would be SPY and VTI YR1 rejection with QQQ Q4P break, combined with VIX jump back above Q4P. But after a big move like we just had, the most likely thing is some digestion and consolidation.
Positioning (long emphasis)
The Pivotal Perspective is to buy the leaders, and avoid, hedge or short the losers. As stocks were stabilizing in mid February I pointed out the relative strength of EWZ and RSX. Then in August I pointed out EEM looked like a great buy. But those days look over as global stocks have taken the biggest hit so far. You might like to review a current list of winners and losers from The Pivotal Perspective.
Due to the caution alert issued 10/27, you had cash or hedges. Then 11/7 move was positive for the market across the board and alert was lifted. If we kept to the current winners pre-Trump, those were: QQQ on USA mains, SMH/SOXX as USA sector, XLF highlighted several times as recently strong, then EWZ on global indexes, EEM also recently strong. Mostly markets waited on 11/8, then a lot changed on 11/9 - QQQ under NovP while DIA and IWM soared above, XLF massive leap, SOXX shuffled, EEM & EWZ crushed.
If you paid attention, you rotated out of losers and held or added to the leaders. EEM below Q4P on 11/9 while others are screaming higher? Out or reverse short. EWZ lower and below NovP on 11/9 with DIA and IWM clearing all? Shift. Though pivots were clear, I'm not saying this was easy to make major allocation shifts the day after the election. But given the volume and pivots, this is what the market was saying to do.
If you didn't do that, hopefully you at least caught the move in financials and can now look for another good setup. Since The Pivotal Perspective was recommending cash or hedges last week, I also wrote up what made for a good entry last week here.
USA indexes look great, most especially DIA and IWM among mains, and XLF/IYF financials among sectors. Safe havens look terrible. This is very bullish action for USA stocks. But the positioning was fast - you had to cut some and buy others to make the most of markets. If market looks more bullish per scenario above, we want to add on some pullback on the leaders. If not, then try to protect some gains and wait for the next setup.
USA main indexes - Several YR1s to watch this week. SPY and VTI are testing YR1s, DIA and IWM slightly above. QQQ Q4P also level to watch. Stronger and very bullish if SPY and VTI join the others above YR1s, weaker if DIA fades back below as QQQ breaks its Q4P.
Safe havens - TLT looks terrible, which has been just fine if you have under-weighted, avoided, hedged, or shorted from Q4 as all comments towards negative charts have born out. Yet I have a few reasons why I think TLT could be set up for a near term bounce (be sure to read through to the end of that article on the actual recommendation at this point). GLD is catching up so to speak to TLT, breaking its 2HP (TLT broke the 2nd time on 10/24, GLD broke the first time on 11/11). Basic point is this: TLT & GLD weak, VIX below all pivots all means bullish scenario for stocks more likely to play out.
Global and other - Ugh, global stocks were the biggest losers of the Trump win. We could certainly have a corrective bounce soon enough, but given The Pivotal Perspective we just have to respect this with an underweight, hedged, avoid or short anything that has long term weakness compared to other asset classes that are much stronger. The other thing is that when you buy USA stocks you have monthly and quarterly charts that are much better, compared to say EEM that is, on the monthly chart, below a rising 10MA, a falling 20MA, falling 50MA, and falling 100MA.
This is about the fastest move from RSI oversold to overbought on daily charts I can recall. Several indexes reached one or the other, and IWM even both, all in about 1 week. Markets can ignore overbought - just check SMH/SOXX on the summer rally - but DIA daily RSI at 72, 3 days outside the daily Bollinger band, and now pushing outside the weekly Bollinger band, all means some reaction and digestion is the next natural move.
Valuation and fundamentals
Currently mixed for the market, which is an improvement on the last several weeks.
Put-call ratios were understandably very high heading into 11/8, and perhaps the election move is just something the market makers are engineering to destroy all those puts. No one never really knows why the market moves why it does. Regardless, AAII sentiment has jumped to the highest in 2016, but when we consider more years it is not a huge deal. Still, top 11% percentile for 2015-16, and top 26% percentile 2014-16. Sentiment will be more toppy if we see ISEE spike highs too.
November dates (published 10/29)
11/1 - non event, middle of drop (major low 11/4 not close enough)
11/18-21 - not sure how this will work out given election