Version 3. See the tag for prior versions.
Not calling a top yet, but some conditions for a top approaching and/or more in place. Now we have a timing window 7/29-8/5 which I have listed for several weeks as one of the stronger windows of the year. Sentiment extremes reached the past week. Not sure what to say about valuation. Unless we have multiple indexes showing rejections and VIX / XIV confirmation, usually it is better to simply hold longs instead of dinging account with hedging commissions etc.
1. Multiple major USA indexes at major resistance, then rejections? VIX / XIV alert?
SPY and ES1 at major resistance, other indexes holding resistance levels as support. No sign of any rejection. No VIX / XIV alert. Not a top yet.
2. RSI estreme reached? Negative divergence? Bollinger bands in play, or divergence? (ie "other technicals)
On the daily charts, DIA reached RSI 68.9 on 7/20 and faded from there. QQQ reached 69.97 on 7/27 and kept on powering up. SPY and IWM not yet.
INDU quarterly chart has the same RSI issue as pointed out last time, and looks like a bit more fade from near monthly BB test.
For now other technicals say pause not rejection.
3. High tested with at least 1 lower high?
After making highs on 7/20, SPY has been up in the same area for several days. DIA went a little lower, IWM bit higher, QQQ much higher. No high test / lower highs.
4. Safe havens showing concern?
Yes, but only TLT and GLD not VIX / XIV.
5. Breadth or volume divergence (adv / dec volume is my favorite)
Mildly, but adv / dec volume holding 0 line. Again, NYA & IWM strength help alleviate breadth concerns.
6. Sentiment extremes reached?
Yes, definitely. 3 of 4 meters I track now have reached significant extremes. These show on shorter term timeframes, but not on longer term moving averages. See recent post.
7. Valuation / fundamentals?
Many would argue this is most important, but I believe information will show in charts first. Citigroup Economic Surprise index did a great job confirming the stock breakout, but dipped down after worst than expected GDP on Friday. Valuations on the higher side, but in later stages of 2009 bull market maybe we will see SPX forward p/e 18 - 20 especially if political concerns ease in the fall.
8. Timing window?
I don't get them all and some turn out to be non-events, but several major turns this year have been in timing windows identified in advance.
2/11-15 stock low / bond high
6/8 stock high
6/28 (missed by 1 day and magnitude)
July dates as listed from end June have been:
7/13-15 looking like short term momentum top and/or non event
7/29-8/5 looks like one of the stronger timing windows of the year. It may not be a final stock market high, as those are more likely in Q4-Q1, but could be a decent top if we see INDU stop bang on its YR1 in that period, along with sentiment going bonkers. Let's see.