Total market view

12/11 Total market view: "This is really an amazing move and everyone knows it. So, sentiment has gotten to the point where it often does near market highs or places where upside is more of a struggle. Despite showing several signs of longer term strength, at some point the rocket runs out of fuel and I think we are probably at that time. Bottom line - Just like last week all we needed to do was watch Tech set Q4P (which clearly held and rallied), this week I'd suggest watching reaction from RUT YR2 1387 which is an amazing accomplishment with lows of year on YS2. The market has surprised me with strength and I suppose that could continue, but I 'think' the next move is sideways or some drop."

Result was high of the week on RUT 1388 and down from there in early hours of trading on Monday. Other indexes rallied into 12/13 highs but also ran into resistance on long term resistance levels (see Pivots section below).

Even though initial blast off post election lasted longer than I thought, I think likely that Santa has already delivered and next move sideways or some drop. Digestion would be quite normal here. At the same time, unless there is some political or international relations shock, it is hard to imagine too much selling pressure. 

Bottom line
Recommendations shifted from very long (120%) to defensive (50% net long) last week. The hedge was right from the highs on IWM and FXI shorts are making money. If right about sideways or down, then can simply hold current positioning without too much change. If market takes off up, or FXI holds its D200, then quickly back to market weight long with a focus on USA leaders by covering shorts & taking off hedges. Probably I will do at least some of latter next week. 

More detail here in dedicated post. Ideally we are locking in gains without missing further upside. This is why I adopted for more hedging rather than outright exits, because a breakeven stop on the hedge quickly takes portfolio back to long side. Main changes last week were adding IWM hedges per last week's Total market view, adding FXI shorts, taking some gains on DIA and QQQ. All of these so far right moves. I was willing to take some gains because sentiment clearly at huge extremes and usually these are not times to press on the long side. 

USA main indexes - several long term levels have capped the move. I think it is more likely that the market will be sideways or down instead of resuming rocket launch. In play: SPX YR2 2282, INDU 2HR2 & YR2 combo at 19900 - 20020, NDX YR1 4960, and RUT YR2 1387.

Safe havens - VIX and XIV both very constructive for stocks. TLT and GLD both below all pivots now, though GLD may be able to recover its YP.

Global - Last week's Total market view pointed out FXI weakness and having done my chart homework was willing to take short on 12/12 with break of Q4P, hold despite recovery 12/13, and added on 12/14. 

Currency and commodity - DXY stronger above YR1 102.72.

Other technicals
Market has gotten ahead of itself with several weeks outside weekly Bollinger bands on leaders IWM, DIA and XLF (SPY just 1 week outside the band and QQQ not at all). RSI on weekly charts is high, and daily RSI readings are literally off the charts. The market needs to work off the overbought condition - this can happen by sideways or down. 

Is market making a top? Here's my checklist. 

Valuation and fundamentals
Currently constructive, though market may hang around 17.5 for a while before trying for 18x. 

Several extremes reached recently per this post on 12/11. 

December dates (published 11/26)
12/1-2 strong - turned out key pullback low as suggested last week: "If Tech holds Q4P a lot would line up quite bullish" 
12/7-8 maybe - non event middle of up
12/19 - setting up for low or non event
12/28 - TBD