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S&P back up to high of recent range as commodity stocks continue to shine

May 17, 2016

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

2042-4, 2035-6,  2026-8, 2007-9      Support
2069-70, 2075, 2080-1,  2097           Resistance

 

TREND OVERVIEW

S&P Futures:  Mildly Bearish- Pullbacks likely to test lows of recent range after yesterday's surge.  Resistance 2069-70, 2075 while support at 2042-3, 2035-  Look to use weakness over the next couple days back down to support to consider covering shorts.  Over 2080 on a close needed for bullish stance.

EuroSTOXX 50-  Neutral, but similar to SPX, expect near-term weakness which should challenge lows of recent range- 2883-2900.  Above 3000 would be a bullish short-term development, while under 2880 is clearly negative.

Hang Seng China Enterprise index- Minor bounce from Ichi Cloud in the last couple days, but broader trend remains negative-  Use bounces to 8600-8650 to sell, while any close back under 8300 allows for test and break of recent lows just under 8200.

Equities-  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


Monday's rally didn't do much to change the structure in the short run, and a move over SPM6-2070 is needed for any sort of hope for the bulls in the short run, in June S&P Futures, with 2080 being very important.   For now, the short-term pattern remains choppy and range-bound, as prices have gone from the lower side of the range, back to the resistance highs, as dictated by the falling trendline from mid-April.  Until prices can decisively break back above this downtrend,  it's right to sell into gains like what happened in Monday's trading, expecting a possible retest of the lows before any real support.

Monday saw a decent pop in the stocks yet again which correlate well with commodities, as WTI Crude's gains continued, and the US Dollar's rise seems to have stalled. The Metals continue to shine, despite some easing by end of day, but both Materials and Energy outperformed and this trend looks to be ongoing as there remains no real evidence of any top in commodities after a sharp four month rise.  While Crude has gotten stretched in recent days on its move above $48 late on Monday evening, pullbacks would afford buying opportunities for a move into $50-$52.  The area at $46.50-$47 looks attractive to buy dips in Crude for a continued rally.

The move higher in both Healthcare and Technology however might be the biggest cause for optimism, as signs of Apple trying to bounce helped Tech stage a decent bounce, and the NASDAQ has taken the lead in turning back higher of late which will need to be monitored.  Overall movement back over 4408 in NDX and 4812 for NASDAQ Composite would be thought as offering reasons to be long for a continued rally.
 
Overall, the move in US Treasury yields and German Bunds along with Dollar/Yen is probably the most important things to watch for clues of any real bottoming or further deterioration in Equities, as the correlation between TNX/SPX and USDJPY/SPX remains moderately positive.

Charts and comments below

Early morning strength never quite let up and by end of day, S&P had gone from an area of concern to the downside, to an area of likely trend consolidation on the upside, which should stop prices in their tracks until S&P can reclaim 2080.  For now the entire pattern remains inconclusive, but more bearish with prices back up towards the highs of this declining trend.

 

Crude's outperformance continues and as of late Monday night, has lifted up over $48.25, which is nearly a 10% move from this time last week when it was trading in the low $40's.   Pullbacks down to $46.50-$47 would offer a better opportunity to buy, than to attempt to follow at current prices, but the move has shown really no signs of any type of reversal, so pullbacks should constitute good buying opportunities. Energy, meanwhile, continues to make upward progress and should be able to outperform most of the S&P Level 1 groups as WTI and Brent crude rise.

 

The inability of Treasury yields to mount any kind of a serious rally raises serious doubts as to the longevity of any Equity rally in the short run and the price action in most yield charts makes additional downside likely for Treasury yields for at least another 3-5 trading days, by which time Equities and Treasury yields might be able to show some evidence of rally.  For now, a revisiting of 1.70 down to 1.68 looks more probable than continued gains.

 

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