April 5, 2016
S&P JUNE FUTURES (SPm6)
2037-8, 2020-2021, 2004-5, 1956-60- Support
2071-2, 2075-7. 2080-2-, 2105-7- Resistance
Yet another day in the books where Equities basically ignored the movement in WTI Crude, and Treasury Yields, which given the correlation of the last few months would have had a much larger impact 1-2 months ago. Stocks and bonds began to trade in tandem starting in mid-March, and despite some minor backing and filling today for Equities, we saw precious little evidence of any weakness to start the first full week of the new quarter, outside of groups directly tied to commodities, that being Materials, Industrials and Energy.
S&P failed to take out last Friday's lows, and showed just minor weakness Monday. To expect even a minor correction, June futures will need to violate 2037 at a minimum, which would be a warning (2020 being a larger support area that's important to hold. ) Until that happens, It's possible that the rise in Technology (AAPL) along with Healthcare and Consumer Goods could lift stocks a bit further, as the Materials and Energy sectors comprise very little overall weighting in the SPX.
In the last two weeks,we've seen both the US Dollar and commodities trend lower, which might seem unusual, but certainly not unprecedented. Transports have begun to wane and pullback, while Small-caps have begun to churn after rising to near key trendline resistance from late last year.
The key positive in the short run concerns the degree to which Healthcare is mounting a comeback, which might make sense to those studying last quarter's outsized losses in the Healthcare sector, which underperformed all other 8 sectors and lagged the closest peer, Financials, by over 140 bps in Q1. As of Monday's close 17 of 20 of the best performing stocks were Healthcare related and stocks like STJ, BSX, BIIB, BMY, ANTM, ABBV, PFE look attractive technically with most of these having made multi-day highs in a fashion that suggests upside followthrough. The XLV looks to to have important resistance up at $71 which is less than 2.5% higher. However, as charts show below, the Relative chart of XLV vs the SPX has strengthened back OVER prior lows, along with having exceeded a key downtrend in relative terms. Both of these developments argue for ongoing Healthcare outperformance in the days and weeks ahead.
Key support lies near 2037, then 2020. For now, despite a 15 point drawdown from earlier highs, this channel from mid-March is very much intact. The next few days will be important in deciding whether S&P can hold and turn back up, or whether a larger pullback lie in the cards, as S&P begins to follow TNX and Crude more closely again.
SPX daily charts began to show evidence of momentum waning going back since mid-March, yet, prices recovered back to new 2016 highs into late last week to end the month and quarter on a high note. Today's Daily candle looked a bit menacing, considering the S&P futures got up near 2070. However, until these trends are broken, it doesn't pay to give today too much weight. Under 2037 on a close would be the first warning and then below 2020, one could project downward under 2000 for a larger drawdown. Until this happens, minor weakness to the low 2040s on Tuesday should be used to buy for aggressive traders with tight stops.
Healthcare has been making a comeback after a dismal q1, where it underperformed all other major S&P sectors. To start of the first real week of the month and quarter, Healthcare was higher by 1%, helping the XLV to lift to levels just below key upside resistance at $71, or about 2.3% higher. While this should be an area that causes the rally to stall potentially, it does look to be reached technically before any reversal, so this group remains one to overweight in the short run.
The key point about this XLV chart which makes it different has to do with the Relative strength ratio vs the SPX, which is found above the XLV price. As can be seen, XLV vs SPX has successfully regained the prior lows, as well as eclipsing the downtrend which suggested this group could be an outperformer for Q1, until broken. Now in fact, this area has been exceeded, and presents a much more positive picture for the group. Given the woes affecting some sectors like Financials and Energy, this looks to be an excellent area to overweight, technically, expecting continued mean reversion.
S&P SPDR Biotech ETF, the XBI, has moved to new multi-week highs after Monday's lift, and could allow for further near-term strength as this rises to challenge resistance near $60. This would likely line up with XLV hitting its own area and looks initially important. If exceeded, we could witness a much larger move out of this group, which for now, remains in a short term bounce as part of its downtrend. Between now and next week, Healthcare looks to outperform, and potentially on a longer-term basis. XBI is just one piece of the puzzle, but is important to see the degree to which this is rebounding.
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