7/16/2017 Total market view: "USA indexes are healthy uptrends, above all pivots and moving averages; and should go higher before we see a decent trading top. For additional context: daily RSIs on main indexes are not yet overbought, safe havens are weak, and emerging markets are ripping. Further, most sentiment readings are nowhere near a bullish extreme - in fact, the opposite! With many participants expecting a correction in Q3, the market may just continue to leave people in the dust. Bottom line - Typically, key highs like 3/1/2017 are made with multiple USA indexes on pivot resistance levels, with other technicals showing divergence, safe haven strength, and crowded bullish sentiment. None of that is happening yet. Markets should go higher."
Aside from DIA, most indexes higher last week.
A lot has changed from my confidently bullish assessment of last week. First, all USA main indexes have reached medium term resistance (ie, Q3 or July pivot resistance levels). Safe havens have strengthened. Sentiment readings are considerably more bullish. Thus, some reaction lower for stocks is a much greater possibility.
Scenarios from here:
Further melt up above Q3R1s to next resistance levels higher (still decently possible)
Sideways or weak selling, then higher
Mild pullback, high test, then lower
Down for 3-5% dip
Probably in this kind of trend, the straight down move is not as likely. Often highs test before indexes drop for real. For example, March highs had a near test on 3/15 before the larger drop. Extremely high momentum trades like QQQ in 2017 may not unfold in this manner; however, that isn't the case with SPY at this point.
So that leaves us with the first three possibilities. If #1, then easy, hold all longs and sell GLD on weakness. If #2 then it is a matter of quick hedge then out; if #3 again we want to be hedged but not overly aggressive on bear side in this kind of market. Given larger trends, I think a hedge rather than raising cash is the right move, although more trouble indicated by VIX or XIV could change that view.
Bottom line - Ready to reduce or hedge unless Q3R1s clear early in the coming week. I was expecting to be cutting XLF late last week with TLT strong, but then noticed XLF holding firm as other indexes were down more so held on. QQQ and SMH have been 2017 market favorites, though any trouble at prior highs could be prelude to another drop. Lastly INDA bang on YR2 but just a pause so far.
10 longs (100%) and 2 safe havens (20%) for 120% total exposure, 80% net long exposure. GLD was nifty trade to be gaining on a safe haven while fully long indexes have also gone higher. Much easier than shorting.
USA mains - SPY, QQQ and VTI all on Q3R1s.
Safe havens - VIX and XIV still confident, but XIV YR3 level to watch. Other safe havens TLT and GLD above Q3Ps! I don't think we should be seeing that kind of safe haven strength in pure bullish scenario for stocks.
Sectors of note - A lot of smart people keep trying to buy oil and XLE, and it keeps on going down. I live in San Francisco and with all these Teslas around it isn't hard to view oil as a soon to be obsolete commodity. Avoid.
Global indexes - ACWI at Q3R1; FXI at 2HR1; EEM 2HR1 near tag; INDA at YR2; KWEB Q3R1; SHComp recently held 2HP and Q3P, only at JulR1; RSX and EWZ at July levels only. Point - global indexes all on key levels too.
Currency and commodity - DXY plunged through YS1 without any attempt at bounce. Larger timeframe charts look terrible.
SPY weekly reaching RSI 70+ and tagging the upper Bollinger band does not happen that often. Here's a quick visual rundown from 1995.
VALUATION AND FUNDAMENTALS
Nicely rising earnings supports the larger trend.
Now that daily put-call measures are near the lowest of the year, the market is much more likely to drop.
Proprietary work in progress model that I am still maintaining in bare bones form due to calls like this.
July dates (published 7/2/2017 Total market view)
Bias was for 7/3 to be a high and 7/21 another high. 7/3 was a minor trading high for DIA. As of last week: "If my idea correct 7/21 will be another high, ideally higher than 7/3."
7/20 close enough. Another score for this model!
Adding 7/26 as possible turn date
August dates - a busy month for timing, alas, probably too busy to be much use.
8/2, bias stock high
I know, +/- 1 is not helpful at all with this many dates. I don't control the model and it just so happens to be busier this month compared to others. With August 2015 recently in memory, a lot of people seem to expect a fast sharp drop. I can tell you that very few were expecting that at the time. Maybe markets will melt up instead, or these dates will be minor swings in a range bound period.