June 16, 2016
S&P JUNE FUTURES (SPm6)
2063-5, 2057-8, 2042-3 Support
2082-4, 2093, 2110 Resistance
S&P Futures: (2-3 days)- Bearish- S&P still vulnerable to new lows in the days ahead, and stabilization is a definite work in progress. Following Wednesday's FOMC, S&P had difficulty rallying, and the pullback following the Bond yield decline looks to possibly extend a bit more before lows are in. Bottom line, until S&P can close back up above 2084, the declines in TNX, USDJPY look important, and those two along with SPX look to have a couple more days of weakness.
EuroSTOXX 50- EuroSTOXX likely should retest February lows before any bottom is in place, but Demark signals here look to be two to five days away from showing signs of exhaustion. Look for additional near-term weakness, but use pullbacks to cover into end of week.
Hang Seng China Enterprise index- HSCEI looks to have rebounded right near key trendline support just under 8450, but could still face a bit more weakness to 8240-8400 before lows are in place. For now, the larger pattern won't turn too bearish unless May lows are violated, at 8175 so it should be right to cover shorts in the next few days on further weakness.
Equities- Attractive Technical Risk/reward Longs
AMT, DTE, CRL, WAT, MDT, TXN, WBMD, HAS, PM, AYI, MO, MXL, THO, CRL, SWHC, INTU, WOOF, CRM, MKTX, DY, CETA, LAMR, ORIG, AMZA, FET, TMO, RTN, KAR, CB, HEI, IT, FIVE, CRL, GPN, DG, UNH, GD, MLM, VSAT, AVGO, CVS, CL,TSN, NXPI, CVC, WB, SAFM, BCR, BSX
Bullish, but extended- Buy Pullbacks- AET (117), EA (70), HSIC (176-7) IGT- (18.50) BSFT (40.50), TAP ($100), AVY (74.50), CB ($122) , FISV (105) , NOC (212), LLL (140), JEC (49), BGS (43.50), NSP (70), LMT 235), VMC (110), FIS (71.50), AEM (48) CHD (98.50), OC (47.25)
Attractive Technical Risk/reward Shorts: UAL, STX, SGMS, ERIC, ROP, AAL, CS, DV, CONN, KMX, SHLD, HZO, GME, KONA, HOG, GES, ZUMZ, SIG, RT, TIF, RL, LC, WDAY, BBBY, XRT, MOH, FL, SPLS,TAN, FOSL, AAP, VSLR, PTEN, GT, GPS, HTZ, CF, SHLD, AWI, CIEN, SQ, CROX, EFOI, CSIQ, FSLR, FIT
Still difficult based on Wednesday's trading to think lows are in. Prices could easily pullback another 2-3 days, asTreasury yields look to be driving Equities right now, and yields are still moving lower. However, any drawdown back to new lows will be a buying opportunity given signs of positive divergence, technically that will increase on a move backto new lows for June. Key will be prices getting back over SP-2084 and severing the downtrend in place since 6/8 highs.
Looking back, stocks failed to rise sufficiently to think lows were in place, and by end of day, the Treasury rally erased much of the early gains in Financials, which finished only fractionally positive, after having outperformed all other sectors pre-FOMC. Financials in general look to be within 1-2 days of bottoming, and technically this should also coincide with Yields bottoming, as the decline has gotten stretched of late with multiple counter-trend signals close to lining up by end of week.
Small caps and Transports both outperformed the broader market, but by end of day, the US finished flat to slightly down, unable to capitalize on the Fed's Dovish talk. It's worth pointing out that the US has continued to experience far less volatility on the downside and upside as Europe, and that despite a lack of material deterioration in the Economic data, yields globally have plunged of late. This was certainly a factor in the Fed's inaction, and caused July's rate hike chances to lessen even further to only a 9% chance, based on Wednesday's Fed Funds Futures.
Until we see rates stabilize, which doesn't yet look to be in place, but should be by end of week/early next, with targets of 1.5250-1.53 for 10year Treasury yields, Financials might still be a source of underperformance, while Utilities should shine. Right now, technically, a defensive stance still looks preferred between now and early next week, while a bullish stance is still right into July/August, thinking a move back to new highs should occur. Selectivity will be key given such a choppy tape for now, until Treasuries can start to weaken.
Charts and additional comments below
S&P futures attempted a mild breakout attempt, which failed directly after FOMC as Yellens' speech cast sufficient doubt as to the course of upcoming normalization that yields and stocks promptly fell back to lows. Given the minor breakout attempt amid momentum stabilizing a bit, the next pullback to new lows should create fairly sizable divergence into end of week/early next. Therefore, dips should be buyable and unlikely that SPX gets back to May lows or under. However, for now ,the next 2-3 days still look negative.
It's right to include Treasuries in our studies these days, as the pullback in yields has had a direct correlation to equities falling recently, as this breakdown in Yields domestically and abroad, whether it be due to BREXIT concerns, or just weakening growth. Regardless, it's necessary to see some slowdown in the rate of descent for yields to help Financials stabilize. For TNX, another 2-3 days of weakness look likely, which could see yields fall to test February lows, and until we see the reversal day where yields close up meaningfully off their lows, equities likely follow suit.
10-year Muni yields today moved back to new low territory, undercutting levels that were set back in 2012. Certainly another disturbing trend as yields globally are falling to generational lows at a time when the Fed is attempting to normalize rates.
US Dollar vs Yen has reached former lows seen back in early May, and is also an important piece in the process for studying US Equities given the correlation seen in the last 12-24 months. The sharp rise in the Yen hasn't gone unnoticed by the Bank of Japan, and attempts at buying bonds as opposed to taking rates more negative could help stimulus efforts in a way that would cause the Yen to turn back lower (or in this case, for USD to turn up vs Yen) Speculative shorts last month reached multi-year highs, so we seem to be near key levels from a price perspective on the heels of the BOJ meeting where an uptick and/or stabilization in USDJPY could be helpful for US stocks given the correlation.
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