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Divergence among the major indices at monthly highs, but breadth continues to improve

June 7, 2016

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

2097-9, 2084-7, 2075-7, 2065       Support
2115-6, 2123-5, 2135-6                 Resistance


S&P Futures:  Trend bullish, and S&P futures managed to successfully breakout above April highs on a closing basis, while SPX cash remains just two ticks away.   The preemptive move to new highs by the Russell 2000 and NASDAQ Composite in recent days should likely cause both SPX and DJIA to move to new highs in the days ahead.  Key for S&P Futures at this point is 2115-6, then 2123-5, but a close above 2111 in SPX cash would be important.

EuroSTOXX 50- Pullback over the last four days looks to be near support at 3000, and technically could see a bounce back to 3100, which when exceeded, should drive prices back above 3148 highs from April.    Movement back above 3300 is necessary to help Europe begin outperforming US stocks.

Hang Seng China Enterprise index- Mildly bullish, but has risen to areas of importance, so the next key area will be 9000 and then 9174, which if surpassed, could allow for a larger move.  For now, the near-term uptrend hasn't given any reason to fade, so barring a multi-day low close, a bit more gains look likely.

Equities-  Attractive Technical Risk/reward Longs
WAT, MDT, ABBV, AET, ALXN, HSIC, AMZN, TWTR, EA, IGT, WBMD, HAS, AYI, MXL, THO, CRL, SWHC, INTU, WOOF, CRM, MKTX, DY, CETA, LAMR, ORIG, AMZA, FET, TMO, RTN, KAR, CB, HEI, IT, FIVE, CRL, GPN, DG, TXRH, UNH, GD, MLM, VSAT, AVGO, CVS, NOC, CL,TSN, NXPI, TXN, CVC, WB, LGND, SBUX, SAFM, BCR, BSX, CCRN, FRPT, DVA, AMZN

Bullish, but extended- Buy Pullbacks-  BSFT, 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: DV, CONN, KMX, SHLD, HZO, GME, KONA, HOG, GES, ZUMZ, SIG, RT, TIF, RL, LC, WDAY, BBBY, XRT, ANF, MOH,FL, SPLS,TAN, FOSL, AAP, VSLR, PTEN, GT, GPS, HTZ, CF, SHLD, AWI, CIEN, SQ, CROX, EFOI, TSLA, CSIQ, FSLR, FIT




TECHNICAL THOUGHTS

S&P futures managed to move to new highs today, while the SPX cash remain 2 ticks under April highs and around 20 points under all-time highs hit last May.  Given that Advance/Decline for NYSE "All Stocks" is now back at former peaks from last year,(All-time high territory)  breadth has certainly accelerated in a positive fashion over the last few weeks.  Price moved to new multi-month highs in the Russell 2000 and NASDAQ Composite, but remains shy in the SPX Cash.  It's important to keep an eye on these divergences in the indices until they're resolved.  

In the last week we've seen breakouts in quite a few sectors, such as Healthcare, Utilities, and an acceleration in breadth indicators higher, while prices have been largely subdued.  The bond market and equities moved largely in tandem last week and Dollar/Yen had a big breakdown back to near former lows, which also should be watched carefully.  Both JPY and TNX have enjoyed moderate correlation with SPX in recent months and over the last year, so when both of these "nosedive" it's difficult to see S&P make serious upside headway.   Yet, for now, it remains difficult to fight the market, and the participation seems to be improving while a healthy dose of skeptics remain.

Overall, Bond yields could be the most important to watch in the days ahead, as both Bund yields and Treasury 10-yr yields have shown evidence of trying to bottom out and rally.  If we see a close at multi-day highs, this could allow the Financial sector to turn back up again, and along with that, US Equity index acceleration higher.  Advance/Decline is also back at all-time high levels from last year, while the SPX, DJIA and NDX all lie within 0.5% of All-time high territory.  Commodities continue to make headway higher, and Crude seems to have a final push up to $52 in store before any peak in the next 1-2 weeks.  For now, its right to stick with the trends which have been working in recent weeks, as insufficient reasons are present for trying to fade the move.


Charts and additional comments below

 

SPX cash managed to exceed April highs on an intra-day basis, while falling just shy on a close.  However, Futures managed to climb above the all important April highs, joining the Russell 2000 and NASDAQ Composite which managed this feat last week.  Overall, a breakout back to new highs seems imminent, and could occur if bond yields start to make headway off recent lows, which should jumpstart the Financial sector.

 

 

Russell 2000's move above April highs has allowed for acceleration in the last few days on both an absolute and relative basis which should drive the RTY up to 1200 in the near-term before any meaningful resistance.  This surge in momentum of late has been a positive factor for stocks overall, but Small-caps still lie meaningfully down under highs made last Summer.

 

 

Continuous Commodity index, as a gauge for Commodities, has spiked sharply in recent days, following the severe pullback in the US Dollar index, which lost about 50% of its entire advance from May last Friday.  While stretched, it's still likely that CCI gets up to near 440 before any peak, and the time in mid-June could be important for some evidence of trend change in this regard.

 

 

Advance/Decline has now reached last May's peaks, when looking at purely the "All Stocks" version of the NYSE A/D line.   While the regular A/D moved to new all-time highs a few weeks ago, having the all-stocks version hit new highs would give further confirmation of equities likely holding up and most broader indices moving back to new high territory.

 

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