1. S&P broke its uptrend from mid-February yesterday, 3/24/16, in the last full day of this holiday shortened week, and could be vulnerable to weakness into next week. Selling SPY at 203.12 up to 204.50 looks right for aggressive traders, with stops at 205. Movement back above 205 should allow for gains to 207-208, albeit at a weaker pace in momentum. Breaks of 202 would be used to press shorts/hedges for a move down to 195.50-196.
2. WTI Crude oil managed to hold its uptrend by the close on 3/24 after early weakness threatened to violate this trend. Momentum is in weaker shape, as seen by RSI hitting nearly the lowest levels since early January before spiking, and will have to be watched carefully at this point for fear of possible pullback similar to the SPX. For now, the trends remain positive, but any break of Thursday's 38.31 low would cause a move down to likely $35, violating the trend from mid-February.
3. Financials is a sector which, similar to the SPX, also broke the uptrend from mid-February, when looking at an equal-weighted basis, and is thought to a negative, given that nearly 16% of the SPX is represented by Financials. This sector was Thursday's worst performer and fell nearly 2% on the week. Until there is evidence of rebounding in this group, it could serve as a notable headwind to stocks.
BOTTOM LINE- The trend from mid-February looks to be waning, and growing weaker as seen by the breaking of various uptrends in this rally over the last five of six weeks, as its moving higher at a flatter and flatter plane. Momentum indicators such as MACD have rolled over to negative on daily charts, which is certainly a minor warning sign given that indices are higher by 13% over the last 5 of 6 weeks with little to no drawdown. While Thursday's open proved to be the lows, carrying indices higher to near unchanged by the close, regaining its 10-day moving average just barely in the process, the rally over the last five of six weeks is definitely starting to lose some steam. This looks to be a weaker time for SPX than what was seen between March 4-10 when SPX also pulled back a few days before stabilizing, and given the trend break, offers aggressive traders a chance to sell into this recent bounce with tight stops in thinking weakness might be possible next week. If S&P makes it back to former highs earlier last week, than its likely that hedges are long and that a resumption of this uptrend should carry prices higher. However, given signs off flattening out suggest selling into minor bounces Thursday for further selling pressure. For next week, given that we've seen a breakdown in the Financial sector which is one of the heavier weightings in SPX, it looks to be a right area to "pick spots" again to hedge this ongoing rally over the last 5 of 6 weeks.
Overall, i view markets to be at a juncture where we could see some minor retracement of the rally from mid-February. This should only be a minor setback before higher prices into May. If prices regain early highs from last week, this will be wrong, and higher prices, albeit with a weaker momentum trend, could carry SPY up to over 207 before finding real resistance. For now, Thursday's bounce should be used to lighten up early next week for the potential for weakness down to 195.50-96-SPY, (1956-60 area or even 1927-8 in S&P June Futures)
S&P Futures 15 minute charts since early last week show Thursday's rebound right back to the area that broke down under the 10-day moving average initially which has now been revisited. Momentum has grown stretched to overbought levels right at this juncture of prior lows, making this seem like an ideal area to consider hedging into early next week.
S&P Daily chart shows the weakening of momentum as MACD has turned negative, while trends are beginning to be broken on this uptrend given the last few days of weakness. Important to note that momentum is in weaker shape than was seen back in early March, when SPX fell for a few days into March 10-11 before rebounding. While any pullback is likely to prove temporary and minor given the currently subdued levels of sentiment along with weekly momentum being strong, i suspect we could be at a juncture again where weakness might happen before strength carries indices back to last November/December highs.
WTI Crude managed to hold its uptrend by end of week, but RSI dipped down to the lowest levels since early January, warning of a waning trend here as well. Given the positive correlation with SPX, its important to note that Crude has held its uptrend for now, but we're seeing signs of negative momentum divergence as momentum failed to follow prices up above $41 earlier last week and then turned down hard into Thursday before rebounding. Going forward, this trend very well could be vulnerable given the momentum slide and one should watch $38-$38..20 for signs of being broken, which would take Crude down to $35 ahead of next month's meeting.
Equal-weighted Financials broke its trend from mid-February, which is thought to be important given its representation in the SPX. If Financials are going to stall out and turn back down, this would represent a serious headwind to stocks in the days and weeks ahead. For now, notable that despite yields hanging around 1.90%, Financials were the worst performing sector on Thursday of the major groups, while were down nearly 2% on the week.
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