April 27, 2016
S&P JUNE FUTURES (SPm6)
2071-2, 2060-1, 2047-9, 2020-2021 Support
2093-4, 2105-6, 2115-6, 2123-5, 2135 Resistance
S&P Futures: Long SPM6- (2071 closing stop)- Above 2095 causes upside acceleration-
Still no signs of any weakness from S&P and despite some sideways grinding over the last week, this hasn't translated into any real weakness. Bias is for prices to test and exceed highs into and after FOMC with any meaningful drawdown postponed.
EuroSTOXX 50- Sideways action over the last 5 days similar to SPX, but not much weakness at all following a 4/21 peak near 3156, which will be important in the next few days. A move over this level causes the resumption of the rally where SX5E can rally up to near 3300 while under 3089 on a close would point Down temporarily. For now the bias is bullish
Hang Seng China Enterprise index- Bullish-Minor consolidation in HSCEI, similar to European and US stocks has not damaged its uptrend, with Tuesday's close finishing right at trendline support well off its lows. A move back to 9400 looks likely.
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)
Ahead of the FOMC, which largely should prove to be a non-event (Fed Fund futures show a 0% likelihood of any Rate hike in April and only 22% for June) prices have moved largely sideways in the last week, consolidating some of the recent gains. Tuesday's trading brought about some of the opposite action seen on Monday, with outperformance in both Small caps and Transports while the Cumulative "All Stocks" Advance/Decline continued to grind higher to test All time highs (Has already been exceeeded using All Securities, including Fixed income) Important to note that buying ahead of the FOMC has largely proved to be profitable. Data from colleague Kora Reddy showed that buying SPY on pre-Fed closes in April is profitable to a tune of +180 bps for T+4, with a max loss of 6 bps. So despite the recent range-bound action, there is something to be said for getting through a period of uncertainty despite no expectation of any move.
While no real action seems to be happening in Equities, we certainly have experienced quite the ramping up in Yields in both US Treasuries and also in German Bunds, and UK Gilts, which broke out the other day above 1.60% and still look to have upside.
The declining US Dollar has helped Metals stage a rebound, whileWTI Crude has moved back up over $44.50 and remains resilient ahead of its Wednesday DOE stats.
Both the gains in Treasury yields along with Crude oil are important given the correlation to SPX, and signal a more positive projection than what might be gleaned than simply using Earnings to forecast stocks. Tuesday's "misses" thus far and revenue guidedowns following the closing bell in both Apple and Twitter don't seem to be having much effect on S&P futures.
Overall, a move back to new highs might seem unlikely, but unless 2071 is violated in S&P on a closing basis, it remains right to be long and expect further upside into and post FOMC. Sector-wise, further energy gains look likely given the ongoing surge in Crude, along with Materials and Financials, the latter being dependent on what happens with the US Dollar and 10-year yields directly following the FOMC. Upside to near $24.10 is likely for XLF while XLB has near-term targets at 48.50. Over the last five days, the leading sectors have been the same ones that have outperformed all month, Energy, Materials, Financials and Healthcare.
Charts and comments below.
S&P futures show mild range-bound conditions in the near-term, with current 2083 in the S&P only 7 ticks higher than where it closed 10 days ago. Given the upward bias in both Crude and TNX, a move back to 2105 and over can't be ruled out, despite many calling for a top. Movement back under 2071 would have importance, but until/unless that happens, a long bias is necessary.
Crude's chart continues to show technical evidence of strength, despite the Naysayers claiming that supply issues should cause a pullback to the lows. Movement over $44.50 keeps Crude moving higher with targets near $48 while only a move down under 42.50 would negate the positive effects of this move and postpone the advance.
US 10-year Treasury yields have largely followed the movement in German bund yields in recent days, the latter having moved aggressively up to near 31 bps. Climbing above 1.80 caused a quick move up above 1.90, where yields are likely to attempt to test 2.00%, the larger line in the sand. Above 2.20 would cause a probable breakout to new highs in the US Equity market in the near-term with Financials showing outperformance. At current yield levels, we're in "No-Man's Land" between 1.80-2.00% but with a positive bias for Yield.
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