Sunday, July 10, 2016

Not a Lot to Say

The title pretty says it all for this week.  Everyone who was calling for the end of the world by this Fall (e.g., PUGS) has now decided to look skyward for SPX 2500 which has me suspicious, but maybe this time is different.  I was surprised by the speed that the SPX reached 2130, but this was not unlike what happened in July 2015, so the Zika scenario I posted last week is still on the table.

So let's move on to the sentiment update.  The composite Indicator Scoreboard shows the average weighted sentiment is still following the July 2015 scenario where a quick run up to SPX 2130ish was followed by a loss of momentum then a retest of the recent lows (SPX 2070s).  Sentiment levels are also still at equivalent levels.

To offset the somewhat bearish implications of a repeat of the July-Aug 2015 market behavior, I want to take a look at the small cap RUT using the TZA/TNA ETF ratio.  Here we see that as the SPX fell below 2000 with the BREXIT the RUT actually fell below its Aug 2015 low and bearish sentiment spiked to similar levels.  Overall the price pattern of the RUT appears similar to a giant IHS pattern with bullish implications.  For the overall market, this seems to imply a less bearish outcome than Aug 2015 should a post-Olympic Zika pandemic scare occur, probably limiting the downside to the low 1900s to be followed by higher highs.

Finally, its time to take a look at gold stocks using the DUST/NUGT ETF.  I have not shown this since the Dec-Jan lows after pointing out the overwhelming bearish sentiment the last half of 2015.  Admittedly, I expected the HUI to stall out in the low 200s and the recent spike is likely due to fears of the BREXIT fallout. That being said, there is no reason to expect an imminent collapse.  One thing I look for is balance, or amount of time above the mean compared to time below the mean and another two or three months of extremely low bearishness is expected.

Conclusion.  I was actually hoping to recommend a rally to test the ATH this week based on the SKEW dropping to the low 120s, but Fridays rally preempted it.  So my overall strategy is to wait and see if there is a set up for July-Aug 2015 scenario.

Weekly trade alert.  None at this time.  I was considering the SPY expiring calls at Thursday's close based on the low SKEW only to watch the 210's go up 5x and the 211s up 10x on Friday. Updates @mrktsignals.

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