March 18, 2016
S&P MAR FUTURES (SPh6)
2025, 2009-10, 1995-6, 1968-70 Support
2044-5, 2055-6, 2060-2, 2075-7 Resistance
1. JPY near critical Downside support-Dollar decline particularly vs the Japanese Yen has reached near make-or-break levels, a huge washout over the last few days that signals a better than average likelihood of this breaking down under 111 in the weeks and months ahead, which would be exactly opposite what the Bank of Japan was hoping for. Traditionally, Yen rallies have coincided with stocks moving lower, which has not happened this time around thus far, but important to watch global assets if and when the Yen begins to accelerate, and USDJPY drops under 111 which normally signals a risk-off trade.
2. S&P rise ongoing, Bullish, Overbought, but No Signs of Reversal S&P blasted back higher through recent highs, and despite being stretched, still has shown very little evidence of any upcoming reversal, with a steady stream of higher highs and higher lows. The key area of focus remains the 10-day moving average which lines up right with the trend from mid-February into 2009. Until this is violated, it pays to stick with the uptrend, thinking that additional gains occur.
3. OIH and XOP could be considered as Technical trading longs, as Crude oil has Surged back through recent highs- WTI Crude has gotten quite stretched of late, having rallied more than 9% in the last few days, but technically has gone a long ways towards suggesting that the recent consolidation should not be taken all that seriously, and WTI has now exceeded last Fall's Lows (which were thought to be important) along with the entire downtrend from 2014, which typically suggests additional upside acceleration. For now, near-term overbought, but the intermediate-term trend has improved on Crude's ability to push back up to new monthly highs. Both XOP and OIH look like attractive risk/rewards in the short run as a way to play the ongoing move in Crude. XOP has pushed back up to new monthly highs in the last week, while OIH has lagged in this regard, and might be an even better risk/reward.
4.Silver a better risk/reward method to play the Precious Metals, near-term-Silver looks attractive here, as it has not made the same degree move of Gold of late, and the SLV has just broken out as of Thursday's close, which makes this a better risk/reward asset to consider in the short run for playing the US Dollar's decline, as opposed to just choosing Gold.
5. Natural Gas beginning to strengthen after reversing course from lows-Natural Gas has also perked up of late and both UNG and NG futures are signaling a good likelihood at this point of furthering recent gains. The ability of NG to climb back over
6. Biotech stocks are set to potentially make new 4 week lows with the XBI having just six more full trading hours in the week and a definite source of consternation for Bulls given Healthcare's weighting in the SPX, along with Biotech often being watched carefully as a key component in the NASDAQ.
BOTTOM LINE- It still looks early to fade this move- Equities remain pointed higher, with yesterday's gains having taken US indices back to positive territory for the year. Despite being overbought, with evidence of Treasury yields and Dollar/Yen moving in a different direction than Equities, (as all in the past have trended together) we've seen no closes under the 10-day moving average in the S&P 500 since mid-February. Stocks continue to track Crude oil's rise and since January both have moved in tandem with neither showing any evidence of trend reversal. Overall, it's difficult to make decisions to take profits based on the degree of overbought conditions alone on a daily basis, as neither weekly nor monthly charts are overbought, while momentum has improved noticeably on an intermediate-term basis given the extent of this lift- Movement up to 2044-6 looks likely, with gains over not finding much resistance until near 2060. Downside support lies near 2009, and until this is breached on a close, it's right to stick with the trend, favoring Energy, Materials and Technology.
S&P trend defying gravity at this point, but momentum has improved measurably and until there's at least a daily close under 2009, it's right to stick with recent gains and expect further near-term upside. It's likely at this point that S&P should move back to test November/December highs by late Spring given the momentum improvement.
Crude oil's rise has been similarly impressive, rising back up above former lows and breaking out above the downtrend since last Spring as well as from 2014 peaks. While overbought after its recent rally with momentum not following the recent push higher given its consolidation in the last week, gains still look likely with a move up to the low to mid-40's before any type reversal. OIH and XOP both look like attractive ways to play the WTI move in the short run.
The USDJPY chart took a turn for the worse with the pullback down to the lowest closing levels since late 2014 on Thursday. The pattern had appeared constructive on a near-term basis as part of this larger breakdown up until the weakness earlier this week, and now 111 remains a key area of support for Dollar/Yen. The larger pattern appears like a giant topping formation given the structure of High, Higher high and then High late last year preceding this recent breakdown. Given that the Bank of Japan desperately wants the Yen to move lower given their falling exports, the flight to safety-type rise of late can't be all that reassuring. Movement down under 111, given the moderately positive correlation with the S&P 500, likely would coincide with at least a minor reversal in stocks.
Natural gas has begun showing increasing evidence of turning higher in the last week and Thursday's breakout above its downtrend from early this year suggests additional upside Technically speaking.
The pattern in Silver looks attractive to think that further gains can occur given that Silver has largely lagged gold's recent rise and now the basing formation from mid-February looks to be giving way to breakouts back up above recent closing highs in SLV, the IShares ETF for Silver, to the highest levels since late last year.
The XBI, the SPDR S&P Biotech ETF, looks set to make new multi-week closing lows as this week's downdraft is set to erase all the gains of the past few weeks. This has been a detriment to the NASDAQ and has caused real underperformance in Healthcare over the last six months, and for now, should still be avoided until we see evidence of greater stabilization.
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