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WTI Crude breaking down along with Gold, as S&P weakens ahead of FOMC

Key THEMES

1)      S&P Pre-Mkt Pullback Hasn’t damaged the structure of the rally since Feb 11- and minor weakness should be buyable, with ideal support down near 1990 for a move into 2030-2040 into Wednesday/Thursday

2)      WTI CRUDE has broken its own 1 month uptrend, and given the correlation with SPX,  Is a minor negative.. WTI looks vulnerable down to 34, and potentially 32.50 on this drawdown

3)      Gold has broken its 20-day ma for the first time since mid-January given the US Dollar stabilizing-  near-term it appears like further declines are likely

4)      Chemicals have stalled out, and one of the biggest laggards within the Materials space yesterday-  Addtl underperformance near-term possible

 

Minor 0.40-0.50% pullback in US Stocks Tues morning as the FOMC begins its 2-day meeting, which is not as widely anticipated given the recent volatility taking the chances of a Rate hike nearly off the table, but the Press conference will be watched carefully for any signs and change in tone to outlook.   The BOJ today maintained its 80 Trillion Yen base money target and a -0.1% Negative interest rate which was widely anticipated, but offered a bleaker outlook and gave some warning to weaker inflation expectations.   Retail sales due at 8”30 this am, with consensus for 0.1%, while Core Sales forecast of -0.2%. and PPI also due at 8:30, also expected to post a Decline

Overall, still difficult to really fade this move, despite some minor evidence of pulling back this am-   Crude is a bigger worry given the recent correlation, but any effect on stocks might be postponed until after FOMC and for now, really no proof of any meaningful deterioration-   The resurgence in Technology looks important in the last couple days sector wise, along with outperformance in Financials over the last week, but we’re still seeing fairly big Defensive rallies with Utilities showing good relative strength, while the winners in the last month,, Energy and Materials, are now mean reverting and LAGGING as of the past 5 days.  Overall as explained in the weekly, the breadth acceleration still looks important and positive and should counteract the concerns about Defensive rallies and short covering for now.

S&P-  Can’t be negative until we see at least some evidence of trend deterioration.  For now, 1990 is key.  Breaks of that would serve as an initial warning with 1968 also having importance

Minor support Tuesday lies at 1996, which if broken, should lead to 1990.  On the upside-  movement back up above 2002 should lead to 2006 and then 2009 as initial resistance but the real area lies near 2015.. and over allows for upside acceleration

One of the things to watch will be WTI Crude breaking down, and despite yesterday’s pullback being recouped, today's early morning decline has broken the 1 month trend

Stocks to consider Avoiding/shorting:   RIG, DO, SWN, HP, RRC,  and/or the broader USO for Crude

Gold has broken its 20-day ma as of yesterday.   While a 2-3 day move from 1280 to 1235 might seem overdone, technically this could lead further down to 1180-90

GLD-  Pullback down to 114.50-115 looks possible in the near-term, with breaks of that leading to a larger retracement before this rally can get back underway.  For now, longs should hold off on buying dips

Materials have rallied up to near key trendline resistance and now stalling-One of the key areas within Materials are the Chemicals, which as seen in the S&P Chemicals index above, have hit key levels and appear to have limited upside-  Additional underperformance possible given this strong overhead resistance