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Shift in perception, but trends remain largely in place- Financials a key focus

May 19, 2016

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

2029-31, 2018-9, 2007-9, 1988-90      Support
2069-70, 2075, 2080-1,  2097             Resistance

 

TREND OVERVIEW

S&P Futures:  Neutral to mildly bullish, using any pullback in the days ahead as a chance to buy, as prices have settled towards the lower part of this range yet again, but have not broken down.  Meanwhile the sector rotation is starting to shift to more "RISK-ON" sectors as Financials and Technology have both improved in recent days.  S&P Futures support to buy lies at 2027-30, or under at 2007-8 while resistance lies at Tuesday's highs on a closing basis, 2069-70.

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- Pullback to near 8000, or 7800 looks possible, with movement back over 8450 allowing for a bounce

Equities-  Attractive Technical Risk/reward Longs
GDX, PAA, ABX, LGCY, ORIG, CDE, AMZA, FET, TMO, CPB, RTN, KAR, CB, CELG, CRL, MDT, GPN, DG, TXRH, UNH, GD, MLM, VSAT, AVGO, CVS, NOC, CL,TSN, MKTX, NXPI, TXN, CVC, WB, LGND, SBUX, SAFM, BCR, BSX, CCRN, FRPT, DVA, AMZN

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

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

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

Despite all the volatility, yet again prices managed to close right near prior closing prices from the last few days, showing little to no real net change.  Looking back, SPX still remains on par with closing prices registered back on May 5 while Treasuries have begun to show increasing signs of selling off, as the FOMC's concerns about the market underestimating the possibility of a June hike seems to be working, with Percentage chances for a June hike nearly doubling after today's FOMC minutes were released.   Overall the range remains very much intact, with 2070 important on the upside and 2030 on a close important on the downside.  While no change has occurred with price itself, the sector rotation which has begun does look important and should mean that drawdowns should prove short-lived.  Cycles show a possibility for trend change over the next week, but a move over 2070 is necessary for a bullish stance at this point, and would be followed, if achieved on a closing basis.

The Dollar was a chief point of concern for many after the FOMC minutes, and furthered its recent gains which caused a bit of backing and filling in Crude, along with the Metals which sold off on the sharp rise to new multi-week highs.  Despite the perception changing on the Dollar, with many now forecasting higher USD and lower commodities in the days ahead, DXY prices seem to be right up against important resistance and it remains difficult to call thisa breakout of any sort, which applies to the USD along with the 2yr Treasury yield , the Financial Sector, or Dollar/Yen for that matter.

The sector rotation was perhaps the most important development Wednesday, as we saw fairly persistent strength in Financials while Utilities and Telecom underperformed substantially.  Given that Financials showed very sharp rebounds while Technology also outperformed, this represents nearly 36% of the market and is seen as a welcome development during a time when other "risky" sectors like Discretionary had dropped off in a major way in recent days.  this would be important if we could see some follow-through in Financials to officially "breakout" in relative terms, something which has not yet happened.  But the strength in Yields and in the Financial sector itself is noticeable and worth mentioning.

Charts and comments below

S&P Daily charts haven't shown much of a change for nearly two months and despite the volatility Wednesday post FOMC,, price remain at levels seen in the last couple weeks.  Movement down under 2030, or above 2070 are necessary to change this pattern with a bias towards breaking out to the upside, with pullbacks proving short-lived.

 

Financials showed a minor breakout in relative terms, yet remain below an area that would suggest the group is beginning a larger period of outperformance.  Movement up above this downtrend line would argue for a huge move higher in the group, something which likely would also correlate with Treasury yields beginning a larger rally.  For now, both are premature and relatively speaking, challenges remain despite Wednesday's progress.

 

The US Two-year yield had a major spike post FOMC, yet remains remarkably range-bound in a triangle type formation which began at the beginning of 2016.  Movement above 90 bps would signal the first sign of progress with additional movement above 1% being important.  For now, we could witness some steepening in the yield curve as two-year yields stop rising and stall out, while the Back-end of the curve plays catchup.

 

The Dollar index has risen right to key Ichimoku cloud resistance along with downtrend lines extending from early February of this year.   While many are counting on the Dollar to embark on a stronger rise, prices look extended here and are below trendline resistance as well as former lows from back in February.  Some type of stalling out looks likely in this pattern before a bigger rally occurs.

 

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