May 25, 2016
S&P JUNE FUTURES (SPm6)
2053-5, 2040-2, 2022-5, 2012, 2007-9 Support
2080-1, 2087, 2097-9. 2105-7 Resistance
S&P Futures: Bullish, but overbought- Given today's breakout of trendline resistance from mid-April, the trend does look to have changed materially. However, now prices are quite overbought on a 2-3 day basis and upside likely limited to near 2080 before stalling. Pullbacks should be buying opportunities.
EuroSTOXX 50- Bullish- Tuesday's rally in SX5E also was a positive in getting back above 3000. While challenges remain, and SX5E is not as bullish as SPX, it does look like additional upside can happen. 3100 area is resistance near-term with a move back over 3150 on a close being important. Meanwhile under 2880 is clearly negative.
Hang Seng China Enterprise index- Neutral to mildly bullish- Pullback has nearly reached 8000 while stalling out over the last few days. A rally in US, European stocks very well might carry Asian stocks too in the near-term, and its tough to rule out a bounce. However, Hang Seng remains more bearish than either SX5E, or SPX, so pullbacks should be quick to sell into
Equities- Attractive Technical Risk/reward Longs
CETA, LAMR, OLED, LGCY, ORIG, AMZA, FET, TMO, RTN, KAR, CB, CRL, 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- BSFT, MDT, 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
Well, the pullback to new lows never materialized before the lift higher to exceed what was though to be important upside resistance for S&P near 2060-5. Getting over this early key area resulted in a spike to the upper 2070s in S&P futures before a minor settling into the close, but overall far more positive than negative structurally. The S&P pattern now has to be looked at far more bullish than the former Head and Shoulders crew was suggesting, and even on a "Back and Fill" in the days ahead from hourly overbought conditions, we're likely setting up for a move back to new highs into early to mid-June.
The US Dollar continued higher, while precious metals got hit hard, and given the degree of trend violation in gold, we could definitely see further near-term selling down to 1210 that might coincide with DXY reaching 96. Crude managed to grind back higher and managed to finish over $49 a barrel, the highest price for WTI since last November, while commodities overall were more subdued. Breadth managed to eclipse 3.5/1 positive, while bringing about above-average strength in Small-caps. Russell 2k actually bottomed where it needed to last week relative to the SPX and has started to rally, while we're continuing to see the outperformance in Technology, Healthcare and Financials, which began recently. This was at least one of the reasons why the market was showing evidence of being near a low. However, no confirmation of that occurred until Tuesday.
Overall, the trend looks to be changing from neutral since early March to bullish again and will be confirmed in this regard, if SPX can exceed 2080, which would point immediately to 2105-10 and even 2140 which would likely trend higher into either early June, or early July, time-wise. Given that Treasury yields in the past have moved along with the rise in stocks, its probably important to see yields start to grind higher on the long end which would add some conviction to this rally Failure thereof would suggest a possible false move given the prior positive correlation. For now though the bottom line result from Tuesday suggests a good rally, but just one that has now gotten a bit ahead of itself too quickly. Technically speaking, it looks right to buy dips in the days ahead if given the chance.
Charts and comments below
S&P hourly charts managed to breakout of this range which had been ongoing from early March, and despite the low volume hanging over this market pre-holiday, it remains right to follow price when an important move like this happens. From a time perspective, prices managed to move at exactly 34 days following the peak on 4/20 which had seen a 69 day rally. Thus, its important to note that many use Fibonacci to measure price retracements, but far too few utilize time. Having grinded sideways to slightly lower for exactly half of the time of a 2/11-4/20 rally is indeed important and goes a long ways towards explaining why prices moved today on little or no news after being so subdued in yesterday's trading. 2080 is important near-term, but any backing and filling likely should not get back under 2056, and particularly 2041, the two areas to concentrate on now for risk purposes for those who are long. Closes up above 2080, while not immediately expected, would be quite positive for an immediate continuation higher into June.
The MSH index vs SPX is being republished today given the progress in getting back over prior highs, something that goes a long ways towards explaining the Technology outperformance of late, as this sector has snapped back with a vengeance recently. Getting back over prior highs in relative terms should allow for further relative strength in the near-term out of Tech and is something to overweight.
This ratio of Russell 2k vs SPX has languished along the lows since February, but looks to have bottomed out again just in the last week at a key area of support and now turning back higher. The relative chart now lies at a key intersection again of this downtrend from last Summer, which held on the first retest back in late April. A second move higher looks to be happening now and if broken, should allow Small caps to make a larger bounce. While the larger trend of Small caps remains sub-par, this relative strength of late is encouraging.
The US Equity chart, when showing overlays of Europe, demonstrates an above-average amount of outperformance of late, which is healthy for the US, and doesn't immediately need to result in mean reversion. While Europe can rally in absolute terms, it will need to make up quite a bit of ground to expect this to show any real outperformance vs the US, which for now is not expected. Getting back to new highs for the US at this point calls for acceleration at a time when its unlikely that Europe could manage to rally back above the highs from last November. For now, US is definitely favored to continue this dominance.
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