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Energy & Healthcare take charge as Financials wane ahead of FOMC

December 13, 2016

S&P MARCH FUTURES (SPh7)
Contact: info@newtonadvisor.com

2245-6, 2240, 2220, 2200-1        Support
2258-9, 2270-1,  2276-7              Resistance

 


S&P Futures: (2-3 Days)  Bullish- Prices look to extend up to 2270-5 into the FOMC on Wednesday before any sort of real stalling out and/or a minor trend reversal might get underway

SX5E- EuroSTOXX 50-  Bullish into Wednesday- Despite being overdone, another couple days of rally look possible before at least a minor pullback gets underway with strong resistance near 3258, or the 50% retracement of the entire move down from Spring 2015.

HSCEI-   Bullish- Monday's decline didn't change much structurally, and prices would require a move down under 9624 before thinking additional weakness might occur.  For now, a move back to 10400 still looks possible


Longs/Shorts for a 3-5 day period:

Technical Longs:  AAPL, MSFT, MRK, GD, BWP, TYLS, UNP, CONN, MTSI, EXP, ALGN
Technical Shorts: DAL,TWTR, TRIP, TUP, HTZ,



TECHNICAL THOUGHTS


The blowoff which began a few weeks ago keeps the near-term bullish and should allow for additional upside into the FOMC meeting with targets near 2270-5 into Wednesday before a minor backing and filling occurs.  Monday's selloff attempt failed to gain much traction, with prices pulling back fractionally, yet failing to take out last Friday's lows while breadth finished at a meager 2/1 negative.    Both the US Dollar index and Treasury yields finished negative after early rally attempts in both USDJPY and TNX and heading into the FOMC, we have evidence of upside exhaustion in both which looks to result in some minor weakness post this week's Fed meeting which might negatively affect Financials. 

The key move Monday occurred in WTI Crude with prices surpassing important resistance which has held since June and should allow for further gains in the days and weeks ahead.  As charts show below, prices effectively got back above a lengthy consolidation range for Crude, and while there remain viable questions as to the enforcement of any Output cut, prices need to be respected, and particularly breakouts which make new multi-month highs which occurred Monday.  Additional strength looks likely for Energy and should continue into year-end.

Near-term, we've begun to see some definite evidence of yield sensitive sectors rallying ahead of Yields turning down, with extreme oversold conditions in most Bonds across the globe on a very short-term basis.  Utilities, Telecomm and Real Estate were all outperformers on Monday while Real Estate outperformed all other 10 sectors in Monday's trading. 

 

 


S&P still shows little evidence of any meaningful pullback getting underway, despite Monday's minor weakness.  Prices could fall down to 2240 without doing much damage and still look to push up to 2270-5 into Wednesday's FOMC results before some backing and filling is likely as the Conference gets underway.  For now, this hourly chart covering the last week in S&P shows the rally and minor drawdown which occurred Monday, providing a good buying opportunity for longs looking to catch further gains in the2- 3 days ahead.

 


WTI Crude's breakout resulted in a huge early surge for Energy prices before a pullback that finished just fractionally above October highs into the close, right near levels that were hit back in June.  This still looks important as a breakout, despite the late day pullback, and intra-day weakness should be used to buy with targets in the high $50s, low $60s before any meaningful top.   Energy stocks have responded quite positively in recent days and Energy Services and Drilling names should fare better than Integrated oils in the near-term as Crude advances.

 

 

One thing that's important to shed some light on, is the degree to which Treasury sentiment has turned quite bearish ahead of Wednesday's FOMC meeting with Non-Commercial Spec futures shorts reaching the most negative level since 12/2014 along with Spring of 2012.  Both of those occasions, we saw yields back off .70-100 basis points in the 1-3 month periods after.  Given that near-term momentum is quite overbought and long-term downtrends for yields remain intact, it's logical to think that a larger than expected Treasury rally is right around the corner just at a time when it's least expected amidst a time of growing economic strength.  Technically, yields have begun to show evidence of negative momentum divergence on daily charts, and it looks doubtful technically that yields should move too meaningfully above 2.50% before reversing to pullback to 2.20 or even 2.00% in the months ahead.

 

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