7/2/2017 Total market view: "This is all important stuff, especially considering all the definitive moves on Dow yearly levels as I have been linking to several times in recent weeks. If safe havens looked stronger and VIX & XIV were flashing trouble, it would be easy to be bearish stocks here. But they aren't, and so I am suspending judgment on the next move for risk. I do think it is possible for a real pullback (ie SPX -5% or more) to be already underway, but markets may just gap above all these levels on Monday instead."
Sure enough Monday 7/3 DIA rallied above its YR1, only to both break and recover in the days following.
I have been mostly skeptical of the market the last several weeks. Why?
Pivots: Dow yearly R1, and historical tendency to make key turns from these levels.
Pivots, safe havens: Strength in TLT and GLD from mid May.
Other technicals: USA index weekly chart RSI divergence highs end of May, along with daily charts reaching overbought levels.
Fundamentals - Plunging Citigroup Economic Surprise Index.
Timing - Weaker momentum call from 6/8 into July played out, but only tech and having its -5% pullback while SPY, DIA and IWM have been firm.
So far there have been three trading days where we seemed to have the start of serious selling from Dow YR1. Here's the cash index:
And yet these have been followed by 3 immediate (or nearly so) recoveries.
So let's consider what has happened:
Pivots: So far Dow YR1 not turning into resistance - still could but not yet.
Pivots, safe havens: TLT and GLD plunging!
Other technicals: Overbought conditions worked off with minimum of price damage; trends still very intact even and especially tech stocks.
Valuation and fundamentals: Still a headwind.
Sentiment: No recent extremes, but a lot of correction talk out there.
Timing: Volatility cycles heading this way soon, but near term I 'think' is a relief of recent weakness. More on that later.
Basically with VIX dropping from 2HP / Q3P, yearly levels threatening break yet recovering, pivot holds or recoveries on SPY, QQQ, DIA, IWM, VTI, VIX and XIV all (!) on 7/7, I'm going with idea of near term bullish resolution.
Bottom line - if markets higher on Monday then we'll see SPY, VTI and XIV above JulPs, a very bullish configuration to be above all pivots and MAs. QQQ will likely continue to lift above its Q3P as well. If bearish, then another rejection back towards 7/6 lows. Based on safe havens and larger trends for stocks without any recent bullish sentiment extreme, I think ball in bull's court.
Back to 100% net long with fewer global stocks, added XLF for first time in months late June, and back into both tech and small caps per last rotation. May go further long with bullish resolution on Monday.
USA main indexes - Still some concerns but cannot argue with SPY hold of near test Q3P, QQQ Q3P recovery, DIA JulP hold, IWM 2HP / Q3P hold and JulP clear, and VTI Q3P hold.
Safe havens - Add to that VIX 2HP / Q3P rejection and XIV Q3P hold. Other safe havens look terrible.
Sectors of note - SMH 2HP and D100MA on the low! Again and again market showing preference for information over oil. Despite TSLA's recent plunge, enough people have seen these cars driving around to see writing on wall for oil.
Global indexes - INDA and SHComp the leaders above all pivots. EEM, FXI, KWEB above all pivots except monthly (like SPY currently). RSX and EWZ weaker, both under 2HPs and Q3Ps.
Currency and commodity - Oil had rebalancing move for 1 week but quickly giving back gains. XLE even worse. DXY stabilizing but still under all pivots. It would take a move above Q3P 97.47 to really start thinking about an uptrend, though chance of key low increases if we see YS1 at 94.86.
QQQ and SMH both just tagged weekly 20MAs the first time since 11/2016, and 6/2016 for SMH! These are rising with healthy slope. Bounce more likely, although also possible to make lower high and then have another drop.
VALUATION AND FUNDAMENTALS
Check out my smoothed 10 week MA of forward P/E and how SPX has tagged and retreated three times. Fundamentals still not supporting.
No recent extremes but several blogs (including mine i guess) seem to be chatting up summer correction idea.
Propriety 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)
"7/3 - looks up for risk.
Wow, another one already. 7/3 was up and so far the high of the month for all 5 USA main indexes thus far. And *the current high* for DIA.
If my idea correct 7/21 will be another high, ideally higher than 7/3.