May 20, 2016
S&P JUNE FUTURES (SPm6)
2022-5, 2012, 2007-9, 1988-90 Support
2047-9, 2064-6, 2080-1, 2097 Resistance
S&P Futures: Bearish- Pullback into next week likely before any meaningful low at hand- SPX cash could get down to 2000-2015, while S&P Futures have targets near 2007-10. Upside resistance lies near 2048-9 with only a move above 2065-6 changing the picture.
EuroSTOXX 50- Bearish- Pattern increasingly favors a final pullback down to 2800 or lower, which would be confirmed on a daily close under 2880. Above 3000 would be a bullish short-term development, while under 2880 is clearly negative.
Hang Seng China Enterprise index- Pullback to near 8000 within the next 3-5 days would signal a counter-trend sign of exhaustion that could result in a bounce. For now, trend bearish
Equities- Attractive Technical Risk/reward Longs
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: XRT, ANF, MOH, NVDA,FL, 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
US indices break of prior lows managed to be reclaimed by the SPX and NDX into the close, but the near-term trend remains bearish, and judging by charts of DJIA and NYA, Bloomberg World index, which are trending lower in a linear fashion, and not as tough to decipher as SPX, a bit more selling into early next week would set up better signals to buy dips.
Three key things are worth mentioning that suggest stocks are close to turning back up:
1) Sector rotation- In the past week we've seen consistent UNDERPERFORMANCE out of the defensive groups, while Tech, Healthcare and Energy have been strong. Energy has consistently shown outperformance in the last couple months, but the Tech and Healthcare strength is notable, and potentially odd to see given the drawdown markets have shown. This leadership shouldn't go unnoticed.
2) Sentiment continues to reflect bearish conditions, as the Total put/call ratio has spiked to the highest levels since January, four months ago, as many are in full belief that the market is headed for another serious downturn. The Equity put/call, while high at .80, is slanting higher and likely will join the Total put/call by early next week on any weakness. The newly released AAII poll shows Bears on 5/18/16 at 34.10 while Bullish readings are under 20, at 19.34, giving an inverted spread of nearly 15 between Bears and Bulls. Historically, it's paid to assume a bullish long stance in the face of such pessimism.
3) Price/time factors are lining up along with Demark counter-trend signals on a global basis which both suggest another 2-4 days of weakness are possible, which would highlight next week for a possible low. US indices overall have held up in far more resilient fashion than what's happened when viewing global index benchmarks, which have nearly given up 50% of the rally from mid-February. However, in the case of SPX and NDX, this resilience is thought to be a sign of strength that leads markets higher in June and July.
Charts and comments below
S&P hourly charts show the violation of prior lows since early April followed by the rally back into the close. 2032 really is the line in the sand, the mid-point between our 2027-2035 support since March. Above 2032 it pays to be bullish, and below it pays to be bearish. Our own negative stance though is brought about by other global indices along with time counts which can allow for a final pullback to new lows into next week which would bring about buy signals and a reason to suggest covering shorts, at a time when most chart-seers might be thinking otherwise. For now, movement up to 2048 should be used to sell, while any pullback under 2023 likely leads straight to 2007-8 as an area to buy in S&P futures.
Bloomberg World index is nearing both a 50% correction in time and price from the former rally which began in mid-February. Many people use retracements, but consider only price in their calculations, but when utilizing time, it often can yield much better results. In the next 2-3 days, pullbacks down to 180 in the Bloomberg world index into early next week would suggest a 34 calendar day decline had unfolded, exactly half the duration of the rally from mid-February into mid-April. The price retracement would also yield 50%, setting up for an exact price/time confluence and area to buy dips.
The Total Put/call ratio has spiked to the highest levels since January, showing a steady buildup of fear as indicated by the index options marketplace. For now, this escalation of bearish sentiment goes hand in hand with what AAII and other sentiment polls have suggested regarding sentiment being subdued and now slowly turning more negative as indices have weakened further over the last week.
Gold and other precious metals have suffered a severe setback in the last two days as the US Dollar rally has continued up even further, with no real evidence of slowing. 95.50 was the initial target for DXY which was hit in Thursday's session and we can't rule out a move up to 96, which would be a key area to consider selling rallies. However, we have to watch Gold and Silver carefully here as both are on the verge of potentially larger breakdowns which would fit with the seasonal pattern for the metals from mid-May into late June. For now, we should be on the verge of a counter-trend rally given the extent of the pullback in the last few days, but if this does not materialize, it very well might be a signal regarding what's to come in the weeks and months ahead for the Metals, as US Dollar strength accelerates.
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