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Stocks near trading lows, but still more to go

May 5, 2016

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

2045-7, 2033-4,  2026-9, 2007-8   Support
2072-3, 2084-6,  2097, 2105-6    Resistance

 

TREND OVERVIEW

S&P Futures: Short SPM6- (Stop lowered to 2067) Target 2026, with outside chance of 2007, but skeptical that 2000 is broken on this go-around,  and various cycles indicate an above-average chance to buy dips should be right around the corner.  For now, the near-term trend remains bearish, and a bit more selling looks possible.

EuroSTOXX 50-  EuroSTOXX is down arguably below the trendline extending from mid-February lows, so a bit of leeway can be given based on the fact that its just one day of trading.  If trends are broken into end of week, it would hold a bit more weight.   For now, unless early April lows of 2860 are violated, it's right to think of this move as short-term only, and expect some stabilization and bounce.

Hang Seng China Enterprise index- Bearish- 8500 possible near-term downside target at early April lows.  Overall, downside trend getting a bit stretched, but the break of this two month trend definitely is a negative in the short run, suggesting additional downside can happen in the next 3-5 days before any recovery.

Attractive Technical Risk/reward Longs
LMT, TAP, DG, MDT, CVS, AVY, NOC, CL,TSN, NXPI, TXN, CVC, WB,VNTV, NAVI,LGND, KMB, SBUX, SAFM, BCR, BSX, DVN, ELLI, NKE

Bullish, but extended- Buy Pullbacks-  VMC, FIS, MBT, AEM,TRXC, EBF, DG, CHD, OC, PM, MCD, AVGO, SONC, POOL


Attractive Technical Risk/reward Shorts:  FIT, FXI, BBBY, MAT, GT, RHI, ANF, GPS, HTZ, CF, SPLS, USG, AWI, WDAY, CIEN, QLIK, LC, SQ, DF, ADS,MNK, P, RL, CROX, FOSL, HOG, MYL

Near-term, Equities remain in a bearish near-term trend as part of a bullish intermediate-term trend from mid-February.  The trend has failed to show any evidence of reversing higher on Wednesday, and stocks continued down, undercutting last Friday's lows.  Small caps continued their underperformance while Energy, Industrials, and Financials lagged in sector performance. Breadth was fairly mild on the downside at merely 2/1 negative, but we saw the second straight day of heavy volume into declining vs Advancing issues. The US Dollar finished with another positive session, particularly vs the Emerging market currencies, where it rose over 1% vs Russian Ruble, Turkish Lira and S. African Rand.

Important to note that despite this bearish near-term data, weekly momentum remains quite positive, while breadth rose high enough in March to finish at new yearly highs, with some gauges such as the Advance/Decline closing at new all-time highs.  So the recent waning in breadth has to be put in the context of this former sharp rally, and if anything the near-term weakness should prove temporary and allow for a move back to new high territory. 

However, until proper evidence of trend reversal back higher occurs, it's right to avoid buying into sectors like the Financials for trading purposes, or other sectors like Technology in the near-term which continues to show real weakness.  Many stocks within the Semiconductor sector, which was just addressed over the weekend as being positive relative to the Hardware stocks given Apple's woes, have been plunging in absolute terms and still look to have additional downside to support near 618 for the SOX, which would be a 50% retracement of the entire rally.  For now, the near-term does look negative for a few short-term cycles will show convergence as of the next few days and possibly allow for some stabilization and a lift back higher.  These will be explained in an additional email to follow.

Charts and comments below.

S&P managed to finish down under last week's Friday lows, and while bouncing in after-hour trading, the near-term remains weak, and likely to trend further South to levels near 2026-8 and/or 2007 for S&P Futures- (Near 2011 for SPX cash)

 

The Philadelphia Semiconductor index (SOX) has retraced about 38.2% of the entire rally from February, with key 50% retracement levels found near 618.  Additional weakness down to 618 looks to be possible before this can bottom out, despite it being a bit stretched based on Wednesday's trading.

 

The Financial sector looks to have peaked vs SPX just in the last couple days after its steep run-up from mid-February.  As the chart shows above, the bounce in relative terms got right near prior lows (now resistance highs) of this giant base which for now has held.  The sector is a poor risk/reward at this juncture until it can climb back over this area in relative terms.

When eyeing breadth charts of the SPX, we see that the 10-day moving average (Purple) has just dropped down below levels hit in mid-April and also February on this recent 60 point pullback over the last week.  This week is also important in having shown high levels of Downside volume (shown in the upper part of this chart).  For now, this data is a real negative for the short-term and will have to be monitored when stabilization starts to occur, which could come as early as Friday/Monday.

 

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