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Stallout possible following 8% rally- Newton's Notes 071316

July 13, 2016

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

2141-2, 2131-3, 2109-10, 2085-6              Support
2148-50, 2053-5, 2160-2, 2180-3              Resistance

 


S&P Futures: (2-3 Days) Stallout likely after S&P reached 2152, or a bit more than 50% projection-wise of the initial push higher from February into April.  While it's a difficult technical structure to argue that short positioning is correct, this looks to be a possible area where at least some hedging of longs is prudent to give this rally time to consolidate, as part of an overall long positioning.  Pullbacks in the S&P to near 2120, or 2100 would be ideal to buy into, or DJIA back down to 18000. ((While not immediately expected,  If SPX gets OVER 2160, then any pullback is postponed while this move stretches further to 2180-5, which should be very strong.))

Technical Buy ideas:  LRCX, OLED, NWL, BMY, BSFT
Technical Sell ideas:  URBN, RL, KSS, SIG, & GPS



TECHNICAL THOUGHTS


Rally bullish, but overdone near-term.  While this rally certainly shows the kind of breadth and momentum acceleration that's wanted on a push back to new highs, it looks to have moved a bit too far too quickly.  Is trying to Fade the rally prudent, even for short-term trading purposes?   A few reasons stand out
 
1) Overbought conditions on intra-day charts--The S&P has rallied 8% in the last 9 trading days, or nearly 1% a trading day, while both SPX and DJIA have hit new all-time high territory. The percentage of stocks trading above their 10-day ma remains stretched at 95% and A/D lines have gotten stretched outside of Bollinger bands over the last week as this surged back to new all-time high territory.  While bullish overall, this looks to need some backing and filling.

2) Many sectors and benchmark style indices have NOT broken out, but lie near key upside levels. XLI and XLY have both reached All-time high territory but have NOT exceeded these levels, while the S&P Mid-cap and Small Cap index also lie near prominent resistance based on highs from last year.  As had been mentioned yesterday, the TRAN and IWM remain well off highs and NDX, CCMP also lie far enough away from all-time highs to argue that this would be a monumental effort for these to snapback sufficiently to join the SPX and DJIA right away.  For now, the intermediate-term move looks appealing.  Yet the short-term rally has gotten overbought and is largely isolated to US Large cap stocks.  The action in the S&P SPDR ETFs in rising up to, but not over prior highs could create a wall of resistance near-term which is formidable and could allow for some consolidation before more indices start to join suit.

3) Bond yields have finally staged the massive bounce talked about most of last week given the combination of Demark BUYS on yield, oversold conditions, and bullish Treasury sentiment.  Despite their uptick in the last few days, Yields remain well off highs made late last year and really haven't participated that much in the "risk-on" rally.  There's been a decent bounce in Financials over the last few days given the Global bond selloff, but the group now lies right back near key upside resistance which is important.  Near-term, equities might back and fill a bit, while bonds could bounce.


Charts and additional analysis below.

 

 

Bloomberg World index has climbed up to levels that should be important as near-term resistance,with prices having rallied back up to areas of resistance formed in early April.  Near-term consolidation looks likely, with movement OVER early June highs of 191.59 leading to a larger acceleration higher, which is expected into late August.  For now, interesting to note that the last three major swings have occurred at 68-69 calendar day intervals.  If this pattern continues, the next key area for trend change would arise in early September. 

 

 

The Industrials sector has now rallied all the way back to near former All-time highs made in early 2015, which is also nearly exactly where XLY has pushed higher to as well.  These former highs are likely to serve as resistance and could cause a slowing near-term, as sectors like Retail have pushed up a bit too far too quickly, with XRT charts looking far different, and not nearly as positive as the S&P 500 Retailing, which is heavily weighted in AMZN.  Bottom line, XLI is intermediate-term bullish, but short-term overbought near resistance, and could stall out in the next 1-2 days and consolidate a bit before pushing higher.

 

 

Small-caps, as shown by RTY v SPX, have rallied hard as part of this trend channel since early this year.  The Russell 2000 index has outperformed the broader market, but yet again is closing in on upside resistance after a sharp two weeks of rally.  This relative relationship between RTY and SPX will be important to monitor in the days and weeks ahead for signs of Small caps starting to stall out and lose steam, or show signs of acceleration.  For now, IWM, RTY still look to have a bit more outperformance vs the broader market, but the upside near-term looks limited per this existing channel.

 

 

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