March 29, 2016
S&P JUNE FUTURES (SPh6)
2020-2021, 2004-5, 1956-60, 1927-30 Support
2040-2, 2048-50, 22063-4, 2075-7 Resistance
1. S&P near-term bearish. Prices remain below its uptrend from mid-February that was broken, and despite Monday being a very light volume low volatility session, momentum worsened given the lack of upward progress in the short term. Technical indicators like MACD are now showing clean breaks of the signal line, a rollover which likely should result in at least temporary weakness during this seasonal weak time for stocks as the 1st quarter comes to a a close. Key resistance for S&P June futures remains near 2040, and above that 2048. Similar to Monday's levels, selling SPY at current levels near 203.25 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. 10 and 30 Year Treasuries strengthened in a manner which looks to lead higher in the short run, along with the US Dollar index turning lower following Monday's economic data. Breaks of 1.85% in TNX would allow for a test of 1.60-5, while TYX looks to be even more negative in the short run, and could get down under recent 2.61% lows to 2.50% before stabilizing. If yields begin to accelerate lower in the next few days, this would be a key piece to the puzzle to thinking equities likely follow suit.
3. Sector mean reversion looks to be happening as indices near quarter end, with the formerly strong sectors like Materials and Energy, which have led over the last month showing weakness, while Healthcare and Utilities, which both lagged in the rolling one-month period, showing greater strength. Utilities stands to best all other sectors for 1st Quarter outperformance, and given declining Treasury yields along with uncertain environment for stocks has shown defensive qualities as well with still a very high number of stocks on the list for new 52-week highs given XLU's recent push back to all-time highs.
4. Industrials behemoth General Electric pushed back up to new 15-year highs in Monday's trading, something which keeps the rally in good standing, as former market peaks nearly always coincided with GE turning lower at the same time. (September 2000 and October 2007) While the recent outperformance in Industrials is certainly not just GE-based, it's important that this stock follow suit as the group hits new monthly highs and shows good relative outperformance vs SPX. GE looks to continue higher over the next few months, with key resistance just above $33, which lines up with the 50% retracement ratio of the entire downtrend from 2000. Transportation stocks were notable laggards, again, and fell for the fifth straight day, something that took the wind out of the sails for this sector in Monday's trading.
BOTTOM LINE- No real change in view based on Monday's trading, and if anything, the pullback in Treasury yields and the US Dollar is encouraging in the near-term to expect minor weakness in stocks to consolidate recent gains before additional gains can occur. Both Small-caps and Transportation stocks have been laggards of late, something which is a near--term concern, while breadth and momentum have been dropping off measurably. Note that most of the concerns remain short-term in nature, and have little to do with the intermediate-term trend, which continues to demonstrate above-average momentum, while the breadth surge still should lead stocks higher, after brief consolidation. The fact that Industrials are participating is a definite positive overall to the bullish picture for stocks into late Spring.
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.
S&P Futures broke down under the one month trend, and have since rallied back, while momentum continues to wane. This still appears like a better risk/reward short for trading purposes after this trend violation, and would need to get back up above 2048 to cancel the negatives.
30-Year Treasuries made a fairly pronounced breakdown in the last few days similar to what happened to equities, but most investors blamed the weak Economic data and downward revisions for Treasury strength. Yields look to potentially face further weakness and could hit 2.50% before rebounding.
TNX broke down after Monday's downward revisions in Spending data, and yields are now threatening key support near 1.85% which is considered important in the short run. Violations of 1.85% would likely hurt Financials performance, and help Utilities, while putting pressure on stocks given recent correlation trends.
GE moved to the highest levels since mid-2001 in Monday's trading, a breakout to new 15-year highs. Given the stock's history though of spiking to new highs and then immediately reversing course, it's difficult to recommend immediately using this breakout to buy. Former peaks in March 2010, February 2011, September 2012 and April 2015 all occurred near temporary market peaks. However, GE's move is considered bullish for Industrials and for the market overall, as Industrials have recently moved to new monthly highs relative to SPX. Upside technical targets for GE lie just above $33, which is a 50% retracement of its entire decline from 2000, which surprisingly, has not yet been tested.
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