March 31, 2016
S&P JUNE FUTURES (SPm6)
2046-7, 2020-2021, 2004-5, 1956-60- Support
2063-4, 2075-7. 2080-2-, 2105-7- Resistance
Heading into the last day of the month and quarter, Equity indices remain resilient, showing no signs of the flight to safety that we've seen into both Treasuries and the Yen in recent days. Prices have pushed back through to new highs for the year within 1% of last November's peaks, shaking off any signs of weakness, while Bond yields have gone exactly the opposite direction, trending exactly the opposite of how they've moved with stocks in the last 12 months. Momentum began to wane in stocks about a week ago, when prices broke one month uptrends, which also coincided with a dropoff in momentum and breadth. (Which also happened in WTI Crude) While prices managed to recover recent trend breaks and push to new highs, we haven't seen momentum follow suit to the same degree which should signal that the rally since February 11 is losing steam, and could be vulnerable to stalling out.
Additionally, indices like the NASDAQ 100 have pushed up above the upper Bollinger bands as of Wednesday while the Russell2k began to show meaningful outperformance vs the broader market. Technology along with Healthcare and Industrials have shown some evidence of strengthening of late, while Utilities continues to demonstrate above-average performance, and is leading all other sectors for the last week along with the last 3 and 6 month periods.
Overall, given the snapback in equities early in the week, it appears as if little stands in the way for Equities to push up to areas near last November highs before we see any kind of trend reversal. However, with the breakdown in Treasury yields in the last week, and continued downward pressure in the US Dollar index, we'll need to monitor for signs of one of these moves being wrong given historical correlations in the last year. Last week's breakdown in equities provided a good risk/reward opportunity to attempt to hedge for a possibility of pullbacks unfolding. However, this obviously proved false when prices moved back up through recent highs.
Bottom line, Stocks remain bullish, and look to be trying to shake off overbought conditions, while at the same time moving in tandem with Bonds, as the Dollar accelerates lower. This, in turn, should help commodities, but Precious metals seem like a better bet than expecting too much more out of WTI crude at this juncture from a risk/reward standpoint. The trends for now favor long stocks, bonds, gold, and short the US Dollar. Charts and additional commentary below
20 TECHNICAL LONGS TO CONSIDER: FB, ELLI, ORLY, POOL, NVDA, GE, MMM, DG, SONC, AVGO, COL, ROP, DHR, TAP, NKE, BCR, XRAY, SSS, STMP, OLED
20 TECHNICAL SHORTS TO CONSIDER: DDD, RL, BBBY, HOG, KODK, CROX, SPLK, OMI, LC, LNG, HTZ, TRN, SGMS, FIT, HOS, NBL, RRC, QCOM, MDLZ, and GME.
Additional longs to consider based on the falling US Dollar: GLD, IAU, GDX, SLV, UGL, DGP, ULE
Minor pullback overnight in Equity futures held exactly where it needed to, right near prior highs that were exceeded for S&P June futures. The two key areas to watch on the downside for risk management purposes are 2047-8 and 2020. Until we see at least a bit of weakness, it remains right to stick with stocks, expecting a potential push up to 2075-2080. However, it's rare for stocks to lead the way, while Treasury yields have broken down, so this will be something to monitor in the days ahead.
Momentum has waned a bit, but prices have pushed through to new highs, which requires redrawing the trendline from mid-February as the trend flattens out a bit. MACD on daily charts turned negative, albeit briefly, but is now attempting to push back higher, but definitely a minor concern to watch when eyeing the minor divergences starting to appear in both RSI and MACD with prices having risen to just below important overhead resistance which has guided the highs of this giant consolidation since last Spring.
QQQ chart is worth watching, as this has pushed up above the upper Bollinger band (2% std dev) while just reaching former lows from last November/December, which should now be formidable resistance. The ability to push back through 110 would cause a rush to cover shorts, and buy into this move, signaling a push up to 115. For now, a stalling out at 110 and consolidation between 107-110 seems more likely, but dips should be used to buy as a push up to December highs remains likely into late Spring.
US 10 year yields have held up relatively better than the short end of the curve but remain under pressure given the breakdown under 1.85%, and the trend for yields remains bearish near-term. We'll need to see the ability of yields to recapture 1.85% to have hope that Treasuries can selloff (yields push back to recent monthly highs) but for now, additional downside looks more likely. Given that Treasury yields bottomed with equities in mid-February, and peaked out last November/December around the same time as stocks, one of these movements is likely wrong, (Stocks and bonds both moving higher) and historically this battle has been won by Treasuries. Stay tuned.
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