April 28, 2016
S&P JUNE FUTURES (SPm6)
2071-2, 2060-1, 2047-9, 2020-2021 Support
2086-7, 2097, 2105-6, 2115-6, 2123-5Resistance
S&P Futures: Long SPM6- (2071 closing stop)-Early Thursday weakness has brought S&P down to test key support at Monday's lows near 2071, but has not violated this level on anything more than a 1 minute basis, so UNTIL there is ample evidence of initial support being violated, it's right to buy dips and maintain a long bias, thinking S&P can shake off this minor weakness yet again. IF 2071 is violated, this would postpone rallies and argue for a move down to 2065 initially, with the possibility of 2048-50 before rallies back to the highs.
EuroSTOXX 50- Near-term bearish on the break to multi-day lows. Downside targets lie at 3043, then 3009, with a maximum pullback to near 2970.
Hang Seng China Enterprise index- Bullish-Minor consolidation in HSCEI, similar to European and US stocks has not damaged its uptrend, and unless 8860 is violated, its right to stay bullish and expect a move back to April highs near 4365.
Attractive Technical Risk/reward Longs
STX, KO, TSN, PAY, GRMN, RIO, VALE, ESV, SGMS, SLM, PRAA, GILD, ETFC, NXPI, TXN, ADI, JOY, FIT, WB, FXI, VNTV, MRO, WMB, HES, APA, NAVI, SWN, LGND, MDT, KMB, SBUX, SAFM, BCR, BSX, DVN, ELLI, MSFT, NKE
Bullish, but extended- Buy Pullbacks- X, MBT, AEM, NEM, FCX, GDX, GG, TRXC, EBF, DG, CHD, OC, PM, MCD, AVGO, SONC, POOL
Attractive Technical Risk/reward Shorts: TRIP, MAT, GT, RHI, ANF, GPS, HTZ, CF, SPLS, USG, AWI, WDAY, CIEN, QLIK, LC, SQ, DF, ADS, BBBY, MNK, P, RL, CROX, FOSL, HOG, MYL (on bounce to 46.5-47)
Early morning weakness given lack of action in Japan given the opportunity to stem the rise in the Yen has caused the largest one-day gain since last August, with the US Dollar pulling back to just above 108 vs Yen, nearing former lows which is thought to be key support. German bund yields have reversed their recent ascent, while US 10yr Treasury yields have also followed suit, reversing course right near a 50% retracement area of the December 2015 to February 2016 yield decline. Overall, Thursday morning is providing much more volatility than we saw post FOMC on Wednesday, but still insufficient weakness to think that a larger pullback is upon us.
In the event that S&P gets back under 2071 lows, this would be a cautionary sign intra-day, and one not to immediately buy into. On a closing basis below 2071, this would flip the near-term trend to bearish, and markets would likely experience a 3-5 day pullback. However, this should prove short-lived in nature and prove to be a buying opportunity for a move back to new high territory given the ongoing intermediate-term strength in momentum and breadth, as the recent rally participation has broadened. One key warning sign that pullbacks were getting near occurred with the Equity Put/call ratio, which had plummeted down to the lowest levels since last August, indicating very little demand for Put options, and often the severe declines in this ratio on a daily basis to multi-month lows can prove to be important.
Outside of Equities, US Dollar weakness continues to be something that is coinciding with Metals and Energy strength, and Thursday's plunge in the Dollar vs Yen is coinciding with DXY getting down under April lows, which should result in additional weakness down to 92.60-85, or an area right near last August. This should have further positive effects for the Metals complex, and Materials and Energy remain two of the better areas from a risk/reward perspective to favor in the short run. WTI's close back above $45 should translate into even more near-term strength back to $48 before any signs of slowdown, and dips on Thursday should provide buying opportunities in Crude, and in Energy stocks.
Overall, Equity weakness should prove yet again, to be short-lived, but should provide opportunities to buy dips in most areas highly correlated with the commodity space, while the declining US Dollar should fuel the metals back to new monthly highs. A rally back to new high territory is expected into late May
Charts and comments below.
S&P futures pullback has reached prior lows from earlier this week, which lines up with the mid-point of its current Bollinger Bands, along with minor trendline support from early March. Holding 2071 will be important for the next 2-3 days, and a breach would signal a good likelihood of at least a minor correction taking hold.
NY Composite strength was a bit more meaningful in closing at the highest levels since last November. Wednesday's close finished above April highs right near levels that were hit last November. Despite the weakness in Global equities Thursday morning, this is a bullish move back to new highs and unless this week's lows are breached, it should signal further strength in global equities.
A more meaningful decline in Treasury yields after FOMC, which has now followed through on Thursday morning following the BOJ non-action. Yields reversed right at the 50% retracement area near 1.92, an important level, and now have quickly pulled back again to just above 1.80, which should be important on the downside to hold.
Japanese Yen has surged vs US Dollar in the biggest move since last August to test former lows made just two weeks ago in mid-April. The area at 107.63 is important technically as support, but doesn't appear like it will hold given the extent of Thursdays move. The US Dollar index itself, has broken down under prior lows, and additional weakness looks likely for the US Dollar not only vs Yen, but other Major and Emerging mkt currencies, which should fuel the Metals complex.
Percentage of stocks trading above their 50, 150, 200 ma continue to lift and have exceeded early Spring highs which were thought to be important. Overall this is an important and bullish message regarding the likely trajectory for US stocks.
Put/call on equities is finally starting to get down to levels that are important, breaching prior lows to reach levels under .60 that were hit last July. This type of parabolic spike back to multi-month lows often can warn that investors are getting a bit too complacent in the near-term, providing markets a chance to consolidate recent gains.
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