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Defensive stocks show strong performance, as choppy price action continues

May 13, 2016

S&P JUNE FUTURES (SPm6)
Contact: info@newtonadvisor.com

2048-50, 2030-2,  2026-8, 2007-9     Support
2079-80, 2084-6,  2097, 2105-6      Resistance

 

TREND OVERVIEW

S&P Futures:  Mildly bearish- trend hasn't shown indications of rising above where it would need to in order to suggest rising prices- While the short-term is rather choppy over the last few days, the pattern over the last few weeks remains mildly negative from mid-April as part of a longer-term uptrend from mid-February. 

EuroSTOXX 50-  Neutral, with stops on longs at 2880-Target 3100- EuroSTOXX looks to have made a short-term bottom with last Friday's close & Monday's upside follow-through. The last few days have wavered a bit, but unless stops are run, the pattern can still allow for strength.  The degree of stalling in the last day after the severe pullback is a bit of a concern, but we'll need to see weakness under 2880 to take defensive action.

Hang Seng China Enterprise index- Bearish, but has stabilized a bit in recent days.  Watch for close over 8588 which would drive higher to 8700-8800.  Given bearish break two weeks ago, bounces should be sold.

Attractive Technical Risk/reward Longs
TWC, CPB, RTN, CELG, GILD, CRL, MDT, GPN, DG, THO, TXRH, UNH, GOOGL, GD, MLM, VSAT, AVGO, TAP, CVS, AVY, NOC, CL,TSN, NXPI, TXN, CVC, WB, LGND, SBUX, SAFM, BCR, BSX, CCRN, FRPT, UNXL, CNSL, DVA, AMZN

Bullish, but extended- Buy Pullbacks-  MO, CB, FISV, NOC, LLL, JEC, BGS, NSP, LMT, VMC, AMSC, FIS, MBT, AEM,TRXC, EBF, DG, CHD, OC, PM, MCD, SONC, POOL

Attractive Technical Risk/reward Shorts: FXI, SPLS, FOSL, AAP, VSLR, BBBY, PTEN, GT, GPS, HTZ, CF, SHLD, AWI, CIEN, SQ, ADS,MNK, RL,HOG

Bearish but extended- Sell Rallies- DDD, CROX, EFOI, TSLA, LC, KONA, CSIQ, FSLR, FIT, MYL


Tough to Buy, tough to Sell- Defensive theme remains-  Pullback might not be over, but should still be short-term negative only, and right to buy dips unless/until 2030 is breached

A couple key themes

Defensive stocks remain quite strong, as evidenced by Utilities rising back to recent highs and Staples showing much better strength than Discretionary

Treasury yields remain sluggish near the lows, and Demark counts on both Bund yields and TY yields are early to bottom by about 3-4 days.

Former laggard sectors over the last few months like Technology and Healthcare,which had shown a few signs in the last couple weeks of trying to stabilize and rally, fell hard today, as the Defensive sectors outperformed in a big way.  For now, trying to buy dips in Tech, Healthcare, Financials, Discretionary remains tricky (though its likely these sectors DO show outperformance in the months ahead.

Sentiment remains far more negative than what would be expected with Bearish counts on AAII widening out as per data for today 5/12/16- with 31% Bears vs just 20% Bulls.  5-day moving averages of the Equity put/call ratio meanwhile are tracking at the highest levels since mid-February when stocks were plummeting towards the lows. 

The Dollar hasn't turned down all that much in recent days, and remains near key trendline resistance.  Until the DXY chart can firmly break, commodities won't rally as sharply, but stlll seems early to call a top in commodities

While trends certainly are more bearish than bullish in the near-term from mid-April, stocks really haven't shown too much damage and the bearish sentiment likely puts a floor under how much stocks can fall in the bigger scheme of things

Charts and comments below

Early morning rally attempts were rebuked, but yet prices remain more choppy in the near-term, in a mild downtrend from mid-April.   Movement over 2080 is needed for a bullish view, while under 2050 would be a short-term negative with 2030 being key to hold.  Given the inability of Treasury yields to bottom, we very well might see a bit more selling, but technically its unlikely that S&P gets under 2000, so dips should be buyable.

Utilities continue to impress, and today's move back up towards $50 could allow for near-term strength and acceleration in the event that prices take out this prior highs from early April and last January.  Despite the urge to want to sell into this, Utilities remains attractive technically and continues to be the dominant performer in 2016 performance.

 

(A closeup of the chart shown yesterday, which looks to be important )  Consumer Discretionary has broken down vs Staples as seen by this ratio chart, and has been relatively weak vs the sector since late last year, despite stocks having nearly recouped the entire decline.  Given that Staples is outperforming Discretionary by more than 300 bps in YTD performance, the start of this underperformance in the Discretionary sector is a notable change for the market at large in the last year.

Equity Put/call ratios right now are near the levels seen back in mid-February when the S&P traded under 1800, or more than 14% below current prices (Based on 5-day moving average)  The PINK line on the chart represents the 5-day, which registered a .86 reading for 5/12/16, nearly the same level of heightened anxiety as seen three months ago.

 

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