April 26, 2016
S&P JUNE FUTURES (SPm6)
2077-8, 2060-1, 2047-9, 2020-2021Support
2093-4, 2106, 2115-6, 2123-5, 2135 Resistance
S&P Futures: Long SPM6- S&P has been remarkably resilient, and still very little evidence of any kind of selloff at hand, as prices remain above levels hit last Thursday. Despite some grinding near former highs, this hasn't translated into any real weakness for US Equities. For two straight days now, markets have rallied sharply off the lows after early attempts at weakening. Under Monday's lows on a close, (2071) would have some importance as a negative for the very near-term, but other than that, it's still very much feasible that a stab back at new highs can occur ahead of this week's FOMC and BOJ meetings.
EuroSTOXX 50- Still positive but showing some signs of being stretched with counter-trend signals of exhaustion per Demark TD Sell Setups present on daily charts which argue for a possible stalling out. We'll see. 3200-25 important while a reversal down under Thursday's lows would provide some consolidation to this rise.
Hang Seng China Enterprise index- Bullish-Upside likely contained near-term at 9500-9550. Under 9000 on a close likely leads down to 8750. Until 8750 is violated, the trend from mid-February remains bullish and pullbacks would be used to buy.
Attractive Technical Risk/reward Longs
STX, KO, TSN, PAY, GRMN, RIO, VALE, ESV, SGMS, SLM, PRAA, GILD, ETFC, NXPI, TXN, ADI, JOY, FIT, WB, FXI, VNTV, MRO, WMB, HES, APA, NAVI, SWN, LGND, MDT, KMB, SBUX, SAFM, BCR, BSX, DVN, ELLI, MSFT, NKE
Bullish, but extended- Buy Pullbacks- X, MBT, AEM, NEM, FCX, GDX, GG, TRXC, EBF, DG, CHD, OC, PM, MCD, AVGO, SONC, POOL
Attractive Technical Risk/reward Shorts: GPS, HTZ, CF, SPLS, USG, AWI, WDAY, CIEN, QLIK, LC, SQ, DF, ADS, BBBY, MNK, P, RL, CROX, FOSL, HOG, MYL (on bounce to 46.5-47)
Monday was an exercise in mean reversion sector-wise, as the best performing sectors over the last one and three month timeframes all took nosedives, lagging the broader market as Energy, Materials, Healthcare, Financials and Industrials all underperformed. The defensive sectors, meanwhile which might have gotten ahead of themselves on the downside, all managed to gain ground, mostly the Consumer Staples index, with gains of 0.72%, led by KR, MCK, TSN, and MNST.
Important to note that neither SPX nor NDX managed to close under last Friday's lows by the Closing bell, while Small Cap and Transports both lagged the broader tape. The uptick in yields for US Treasuries was precipitated with German Bund yields lifting, which spiked briefly over 27 bps, and still look to move higher in the days ahead up to the key 31-33 bps area. While it's been rare to see both bonds and stocks move in unison, typically its wise to follow the move in bond yields in thinking stocks follow suit.
US Dollar managed to show minor weakness given the action in both Pound Sterling and Yen vs the Dollar, both of which gained ground causing the DXY to lose nearly all its progress from late last week. Precious metals rallied Monday, while most Base metals finished down, notably Copper with losses of greater than 1%.
Overall, still a very tricky spot for SPX and not an area to have a lot of conviction for either bull, nor bear case given a positive but waning overbought picture following the 15% rally over the last 10 weeks. Many sectors are up against former highs, and indices and sectors have generated TD Sell Setups, indicating a good likelihood of trend exhaustion of some sort. Yet, given the bullish trend, there really needs to be some evidence before thinking the selloff is underway. As indicated above, its right to use 2071 as support for S&P futures and remain long above this area.
Charts and comments below.
NDX has pulled back to the lows of its Bollinger Band, yet has held early April lows and has rebounded off the lows for the last two straight days. It will be difficult thinking US Equities are turning down without any weakness out of the NDX, and under 4435 on a close would be more convincing. (See the chart above, with BB constricting, andno realsign of trend damage.
German Bund yields spiked above 27 bps and never really experienced too much decline after this initial rip off the lows. For now, Monday's move makes a test of 31-33 bps likely in the short run.
The Bund yield rise was a real positive by the close of trading Monday, and very difficult to consider this a one-day event where yields should come right back down. Closing at the highest levels since mid-March, it's likely that former highs are challenged at 33.3 bps, and if this level is exceeded, this would cause a real spike in Yields up to the low 40s in short order. US Treasuries would likely follow suit given how closely they've tracked in recent past, but Monday's yield rise looks important, and Bearish for Bunds.(Bulllish for yields)
CFTC positioning in GBPUSD indicates that shorts continue to grow as fears of a BREXIT are rising. However, given the extreme bearish sentiment combined with an improvement in the GBPUSD chart, it's looking increasingly unlikely that anything of the sort occurs.
Pound Sterling could be setting up for a large move higher given the bearish sentiment coupled with the improvement in Daily charts of late. This daily chart resembles a bullish Reverse Head and Shoulders pattern which would be confirmed on a move above 1.4514. Such a move would cause a rush in Sterling higher vs USD and could get as high as 1.48-9 in the weeks/months ahead.
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