June 8, 2016
S&P JUNE FUTURES (SPm6)
2097-9, 2084-7, 2075-7, 2065 Support
2115-6, 2123-5, 2135-6 Resistance
S&P Futures: Trend bullish, and 2105 should provide support on any overnight pullbacks for a further advance in S&P futures up to 2123-5. If price closes under 2094, Monday's lows, this would be a mild negative, yet should be able to hold above 2082 which is the bigger area of support and more important. 2123 now important on the upside for Wednesday along with 2132-4. Until proven otherwise, use pullbacks to buy.
EuroSTOXX 50- Minor rally on Tuesday did very little to change the choppy structure, and move back over 3100 likely, 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- Bullish for next 2-3 days with 9174, important then 9300 near April highs. Emerging markets and China both are bouncing given the weak US Dollar which doesn't seem quite flushed out just yet, so a few more down days could happen for USD and in turn, Emerging market strength likely lasts throughout the week. This in turn, should be bullish for HSCEI.
Equities- Attractive Technical Risk/reward Longs
WAT, MDT, ABBV, AET, ALXN, HSIC, 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, CSIQ, FSLR, FIT
It's still difficult to fight this trend, as prices still keep pressing higher, and the lack of reversal doesn't present a compelling case to need to sell. SPX Cash joined Futures on Tuesday along with the NY Composite as all moved above April highs, while the NDX stalled out after its recent gains. While the NASDAQ stalling out of late is a minor concern along with the fact that Bonds are also rallying again, and both 10 and 30 year yields look primed for a possible breakdown of their respective trading ranges, it's difficult to fight the trend in US Stocks as prices continue to push to new monthly highs, and fade the rally based on price action alone, with no other legitimate reason.
Both the VIX and SPX have risen in tandem over the last couple days, while Bund yields and TNX have diverged from SPX lower. However, breadth remains strong for US indices, and gauges like the McClellan Oscillator have now risen to the highest levels since early Spring. Additionally, the Percentage of stocks trading over their 200-day ma is now up to near 70%, or the highest in almost two years' time. Given that near-term breadth has expanded while intermediate-term momentum remains strong while more than more stock indices are breaking out above April highs and in some cases to the highest levels of the year, it's likely that any pullback proves short-lived and provides a buying opportunity for movement to all-time highs in the weeks ahead.
The US Dollar's decline of late has served to help commodities, and Crude oil has moved back up above $50 on a closing basis and seems to be positioned for a rise to near $52 into next week, which from a price and time perspective, would offer a better risk/reward area to consider selling. For now, Energy has broken out again in relative terms over the last few days and is one sector that still looks like a good technical overweight in the near-term with Crude back at new monthly highs. Conversely, given the yield breakdown of late, Financials should be avoided for the next 2-3 days, while Utilities and other yield sensitive sectors could benefit.
Bottom line, the combination of the divergence in which US indices are above April highs, or right at key levels, along with Yields pulling back sharply aren't sufficient reasons to think selling into this rally and stepping aside make sense. The degree to which breadth has expanded while momentum remains strong on an intermediate-term basis make a good argument for buying any dips offered, and staying long Technology, Healthcare, Energy, Materials which should show further near-term strength into early July.
Charts and additional comments below
New York Composite has just exceeded April highs, showing the extent to which this rally is broadbased and not just limited to the SPX. Both SPX and NYA now join the Nasdaq Composite and Russell 2000 in advancing up above Spring highs and have done so on favorable breadth and momentum of late. For now, while some might make the case for a stalling out given the NASDAQ starting to wobble a bit, near-term weakness would be a buying opportunity for a move back to new highs for SPX and for a more meaningful bounce for the broader market.
Emerging markets still look to outperform in the short run after the US Dollar's downturn caused a spike in the Emerging markets ETF (EEM) Movement up above Spring highs would result in a test of the 200-day moving average for EEM, and for this week into early next, the key area of focus will be on this April peak at $35.34. Additional outperformance is likely for Emerging markets this week.
Treasury yields have diverged substantially from SPX in the last couple weeks after nearly a few months of moving in tandem. While it's tough to think that Yields and SPX will continue to trade apart like this, we'll need to see more evidence before thinking its SPX which needs to turn down and join Bond yields. For now, the low yield environment is favorable for Utilities while negative for Financials.
Percentage of stocks trading above their 200-day moving average has reached the highest levels since mid-2014, which likely is a very welcome development for stocks at a time when everyone is concerned about the lackluster earnings season coupled with poor economic data. As shown above , NYSE issues trading above their respective 50, 150 and 200 day moving averages have all moved to new highs for the year, which is a positive development.
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