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Weakness Post Doha Brings S&P to near-term Make-or-Break

April 18, 2016

S&P JUNE FUTURES (SPm6)
Contact: info@newtonadvisor.com

2058-60, 2045-7, 2020-2021, 2004-5Support
2090-1, 2102-4, 2123-5, 2135          Resistance

TREND OVERVIEW

S&P Futures: Make-or-Break territory-Pullback down to key 2061 support- Under would allow for a retest of 2020-1 and potentially 2004-5, while on the upside, Technical targets lie at 2090-2


Attractive Technical Risk/reward Longs
SGMS, SLM, PRAA, GILD, AMTD, JNS, ETFC, NXPI, TXN, ADI, SWKS, LSCC, JOY, FIT, WB, FXI, GRMN, FEYE, AKS, X, RIO, VALE, VNTV, MRO, WMB, HES, APA, NAVI, SWN, LGND, MDT, KMB, SBUX, SAFM, BCR, BSX, DVN, ELLI, MSFT, NKE

Bullish, but extended- Buy Pullbacks-  MBT, AEM, NEM, FCX, GDX, GG, TRXC, EBF, DG, CHD, OC, PM, MCD, AVGO, SONC, POOL

Attractive Technical Risk/reward Shorts: T (36.75 tgt), RT, LC, SQ, DF, TSN (low 60s) ADS, KO (44.5 Tgt) GPS, BBBY, FL, MNK, NOV, P, RL, CROX, CF, FOSL, JWN, HOG, HTZ


Note: This week's Weekly Technical Perspective will be published tomorrow, Tuesday 4/19, covering Technicals of the major sectors, and for now, Monday's report highlights some of the changes in the charts brought about by overnight weakness following the Doha meeting.  Given that WTI Crude was down 7% shortly after trading began, some of these charts take a bit more precedence heading into the new week.  Energy stocks seem to be getting hit hard globally Sunday evening, with stocks out of Hong Kong lower (CNOOC-4.5%, Petrochina-2.4%, China Petro -2.4%) Japan (Inpex -5%, JX Holdings -2.2%, ) and Australia (Beach Energy -6.5%, Santos -6.1% and Origin energy -5.1%) Failure to close the gap from Sunday evening's decline likely will translate into similar weakness in the US on Monday morning with XLE, OIH and XOP.

To summarize this weekend's Doha meeting, reports from Reuters state:  "A spike in tensions between arch-rivals Saudi Arabia and Iran appeared on Sunday to ruin prospects of the first binding oil output deal in 15 years between OPEC and non-OPEC nations, and looked set to prompt another fall in the price of crude."

A few short hours after the Doha meeting failed to produce any solidified agreement concerning a production freeze, even in "Gentleman's agreement form" (while the meeting there lasted well over its allotment and over 10 hours long, Crude promptly gapped down, trading lower by over 7% before a minor bounce attempt, which at the time of writing, was trading at 39.84 in the new June contract, up from $39, while just shy of last Friday's close at 40.50.  S&P futures were lower by 050% or nearly 13 early on Sunday evening, while the NIKKEI was lower by nearly 3%.  Gold, meanwhile was fractionally higher.

Whether or not this weakness in Crude holds over the next few days and translates into a similar move in stocks is difficult to say given that most of this "news" was seemingly very much baked into the market heading into this past weekend.  The Draft of the meeting was leaked ahead of time and showed all sides willing to enter into a friendly agreement, yet with no concrete manner of enforcement.  Even ahead of time, we heard that Saudi Arabia was insistent on Iran also freezing production which Iran had no intent on doing.  Additionally, the IEA stated that even in the event that a Freeze was put into place, it would likely have little to no effect on Supply.  Yet Crude prices only slipped marginally until the actual meeting took place, which apparently lasted over 10 hours long, with OPEC set to try to avoid yet another unsuccessful meeting.

As charts show below, Crude maintains a fairly bullish pattern since mid-February, despite this selloff post meeting Sunday evening.  Stocks meanwhile have slowed in their rate of ascent as SPX, DJIA and NDX all neared November highs, while a number of Sectors also wrestled with key resistance near former highs.   (XLI for example) Daily momentum has been showing warning signs since mid-March, with higher and higher price highs, yet lower and lower momentum highs.  Meanwhile,  weekly momentum still looks to be in great shape, with a positively sloped curve, and Equal-weighted SPX along with NY Composite have both broken out of intermediate-term downtrends from last Spring.   Sector-wise, Financials have joined Industrials, Healthcare and Discretionary in showing better strength, while Technology has performed at a mediocre rate while trends remain rather supportive of this group strengthening.  These are positives given that the market continues to have its fair share of skeptics.

Overall, i view the selloff in Crude to be a temporary affair, and a buying opportunity along with a selloff in stocks which would be embraced for higher prices in the weeks ahead.  However, a move down under 2020 for S&P Futures and $37 for June Crude would be important, while initially $2061 stands out for S&P, which has been tested once already Sunday evening. 

 

S&P futures have pulled back to initial support at 2061 which was a stopout for longs and thus far has just barely held on, but looks likely that could be broken by a small amount before lows are in.  One can buy vs 2061 with tight stops and targets to fill the overnight gap, but breaks of 2061 likely lead down to the next area at 2053-5.

Crude has fallen nearly 7% following the Doha Non-decision, but bounces haven't been able to gain much traction.  15-minute charts show key resistance near $40 which held on the first go-around in the new June contract.

Similar to stocks, WTI has shown some mild negative divergence after testing March highs, but could afford to fall down to $37 without violating the ongoing uptrend from February.  Thus, despite this weakness, crude remains positive technically and should represent a buying opportunity on this pullback.
 

Japan's NIKKEI 225 fell around 500 points, or 3% as the combination of lower Crude and its own earthquake could be weighing on prices early this week.  Provided that price holds up above March lows, the pattern is more neutral over the last couple months, not bullish, nor bearish.
 

Japan's JGB 10year yield has fallen back to new all-time lows in negative territory, which seems to be clearly moving in the wrong direction to what Kuroda and Abe had planned.  Given a plummeting USDJPY and JGB with the NIKKEI showing above-average downside volatility, this will need to be stemmed quickly to have any signs of confidence.

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