17 Mile 2.0 Strategy Note 2

17 Mile 2.0

Strategy Note 2

July 13, 2017


US EQUITY MARKET

While global economic and corporate earnings growth continues to firmly underpin the global equity market – thus limiting ultimate downside – US market breadth and sentiment, as well as recent market price action, continue to suggest the US equity market is setting up for a 5-10% correction.

One of the better US equity market breadth indicators is the percentage of stocks with a 50dma greater than the 200dma. This continues to roll, suggesting the market is churning beneath the surface in search of a durable bottom. And this dynamic is confirmed by the negative divergence in the percentage of stocks above their 200dma.

Market sentiment continues to make “lower highs” alongside a negatively diverging index making new highs; which is also confirmed by the lack of an oversold condition in the percentage of stocks above their 50dma.

Lastly – per the venerable Sentiment Trader Twitter account, market participants are positioning themselves via the derivatives market in a similar manner to past intermediate-term market tops.

PORTFOLIO ACTIVITY

As of this morning I continue to build the SPY short position in anticipation of the market’s first 5-10% pullback in a number of months, while retaining enough room to add in the event the market continues upward. The cash position also remains high at just under 30%.

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