May 24, 2016
S&P JUNE FUTURES (SPm6)
2040-2, 2022-5, 2012, 2007-9, 1988-90 Support
2057-59, 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 2065 in SPX futures. Note, despite the minor lift in S&P late last week, the trend really hasn't changed materially.
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, 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- 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
Overall, Monday kicked off with a very tight range that by the end of day hadn't moved hardly much at all from levels seen last Friday. More of this had to do with price and time not being in alignment for an acceleration, than the lack of any macro news or earnings. Volume came in nearly at the lightest levels seen so far in 2016 with a slight edge towards Advancing issues vs Declining, but much greater volume taking place in the "DOWN" stocks. Additionally, the USDollar showed signs of stalling out,but yet made no meaningful reversal, while commodities were largely weaker. Despite this, we did see meaningful outperformance in Materials, given the Monsanto announcement, but also produced strength to the tune of 2% or greater in FCX, CF, AA, and FTI with Materials rising to test April highs relatively speaking vs the broader market which is a positive for this sector.
Specifically for the days ahead, the trend is choppy, but bearish since 4/20, and we still have yet to see evidence that prices have stabilized sufficiently to move higher. As mentioned last week, the combination of 1) Sentiment, 2) Sector rotation, and 3) Cycles all suggested that a trend reversal was near. But the rally from late last week has kept prices range-bound, and it was thought that prices should decline into new low territory before lifting, which would satisfy some Demark timing requirements, for equities and likely Treasury yields. Overall, this could result in a selloff this week, barring a move back over 2065 for S&P June mini S&P futures which could test and break recent lows at 2022 down to just north of 2000 before finding meaningful support. Based on some proprietary time data, the key time zone for a reversal of trend lies near 6/3-4, which could translate into another week of declines into end of month before any meaningful turn back to the upside.
Key developments for Monday included the advance in Semiconductors back into the range as per SOX charts which looks to be important and bullish. Second, the market saw the Materials sector rise to test former April highs in relative terms to the S&P, when looking at charts of XLB to SPX. Third, we saw a continuation of the defensive selling that began last week while broader indices remained largely range-bound, not only in the US but also Europe
Charts and comments below
S&P hourly charts show the ongoing churning which has taken place since last Friday as part of this bearish trend since mid-April. While there ARE factors that suggest a turn back to the upside should be near, we'll need to see a move back over 2065 to think this is upon us. For now, the higher probability trade is for prices to visit the lows of this range in the days ahead.
The Materials sector has risen in relative terms right back to the highs seen in April when looking at XLB vs SPX and looks likely to break back out to new monthly highs technically, which would be accelerated if the US Dollar index begins any type of pullback to its recent rally (which for now, has been hard to come by) Trends remain positive for Materials and this is still a sector to overweight.
This SOX chart is an update to one published just Monday morning, but shows prices now moving steadily back into this range which has been ongoing since mid-March for Semiconductors. Movement back over 680 would be positive for a big acceleration higher in Semis, which has already been shown previously in relative charts to the broader market along with other parts of Technology. Overall, the act of reclaiming 660 in SOX makes for a far less bearish chart than what was seen last week.
The 2s/10s curve continues to flatten out, as the rise in 2year yields has moved up to challenge the important 90-92 bp area yet again, while the long end remains subdued. This former bounce from lows looks to have ended and now we're seeing a challenge of former lows, which if broken, would give way to severe flattening in the 2s/10s curve even further to multi-month lows. Given that most of the recent talk has centered around the Fed hiking rates potentially in June, the market certainly doesn't seem to fully embrace this thinking, given the reluctance of long yields to lift on the Fed's rhetoric.
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