REVIEW
9/2/2018 Total market view: "Bottom line - Often DJI pivots give the definitive tells. The market just stopped at DJI HR1 so taking steps to lock in some gains, or play for a bit of downside while holding longs, should work or will have low cost at worst. In addition, September is known for weakness followed by a strong Q4 especially in bull markets, so a strategy for near term weakness but likely higher highs seems to fit the market here."
Result - Market pullback in process.
SUM
Last week I expected a pullback and that is exactly what happened. Last week's suggestions to play for downside worked if you raised cash, played volatility, shorted China via FXI - but a hedge idea on DIA did not work. OK, now what?
Typically pullbacks to support in larger up-trends are bought. Both SPX SPY and RUT IWM are testing MPs, which along with rising moving averages, would be good places for a bounce. Keep in mind that pullbacks to monthly pivots have been the key lows in the last few months, starting with the launch from HPs QPs MPs across most USA indexes in early July, a pullback to MPs in early and mid August varying by index, and now.
However, there were some bearish developments last week and we need to be on guard to take more defensive action should this bounce not occur. NDX is below its MP for the first time since early July, and a YR2 HR1 rejection is in process. SPX and DJI HR1s are also acting as resistance, though without much selling pressure yet. If 3 of 5 USA mains had rejections at long term levels, then this would indeed be a bearish development warranting further reduction in risk. But this hasn't happened yet, and I still think the odds are that SPX and RUT hold MPs and a bounce is the next move.
That said, keep in mind the larger environment - global markets are in trouble. Emerging markets in $USD terms are getting crushed (FXI short last week the best performer of recs from last week). DAX is also near its low for the year, and Nikkei225 has been chopping range bound for several months as USA has rallied.
Fixed income is not helping to steady portfolios with most major categories negative YTD. And of course, a bloodbath in cryptos.
In sum the QT dominoes are falling and I believe it is only a matter of time before these impact the last in line, USA stocks with a focus on tech and small caps in particular. For now still focusing on these leaders although last week small caps took over from tech as the relative pivotal leader both in terms of monthly pivot (IWM above MP, QQQ, XBI and SMH below) and long term levels (IWM above YR2, QQQ below).
Bottom line - playing for a bounce from SPX and RUT MPs. But NDX along with both SMH and XBI have already broken MPs, and NDX is showing a bearish move from long term resistance YR2 HR1 so this must be respected. If the bounce doesn't happen, I'll move further to cash and watch for the next setup.
PIVOTS
USA main indexes - NDX below MP, but SPX and RUT still holding.
Sectors of note - SMH and XBI both under MPs. If rates keep moving up financials should benefit, and right now XLF still holding its MP.
Developed - DAX noted as bearish in last week's Total market view and quickly back to near lows of the year.
Emerging - With nearly all of the indexes I track below YPs, we should see YS1s before a major low. Above YP - ACWI and INDA. Below YP and reached YS1 or lower - SHComp and EWZ. Below YP without having reached YS1 - EEM, FXI, KWEB, RSX.
Safe havens - VIX giving decent tells with recent lows well off the earlier August lows. At the same time the recent move up did not match earlier August. I think this helps the case for a stock bounce as the next move - ie if VIX were really confirming stock trouble it would be higher than the August high. If this idea is correct then we will see VXX move below its MP.
Bonds looked good for a bit but again issuing long term sell signals using total return pivots on TLT, AGG and LQD. HYG reached YR1 resistance and pulled back. This may help XLF do better in the near term.
Metals are oversold but look ready to tank again with DXY again testing its YP from underneath.
Commodities - CL USO also gave back gains last week, with the CL1 continous contract again showing the definitive move with inability to rally above all pivots before the next drop.
Currencies - DXY near YP again. It had reclaimed this then failed. A second clear "should be" definitive.
Crypto - BTCUSD 4-5K target that I have had all year looking more likely.
OTHER TECHNICALS
Everyone who uses RSI noted overbought conditions on daily charts and weekly chart divergences. Those indeed played out. Now daily charts are already in RSI buy zones so this is another reason to look for a bounce next week.
VALUATION
Interesting that 17X forward acted as resistance last week.
Here's more context. You can see 18X orange line was resistance for many months before clearing in 2017 Q4 and the blowoff to near 20X (red line). But 18X acted as resistance after that, and now 17X (green line) seems to be acting as resistance as well. A somewhat bearish long term consideration if this continues.
SENTIMENT
Last week noted that sentiment measures were starting to tilt too bullish - this supported the pullback idea.
TIMING
See this recent review.
August dates (posted 7/22 Total market view)
8/2 - Stock pullback low
8/6-8 strong - "Seems like setting up for high"
8/17-20 - 8/21 minor high and mild pullback
8/27 (added) - Missed top by 2 days so not close enough, non event.
September dates
9/6 - Stock pullback low 9/7? TLT bounce high.
9/13
9/20-21