July 14, 2016
S&P SEPT FUTURES (SPm6)
2140-2, 2131-3, 2109-10, 2085-7 Support
2151-2, 2160-2, 2180-3 Resistance
S&P Futures: (2-3 Days) Neutral after recent rally looks to have stalled out, but insufficient signs of weakness thus far to think an immediate drawdown takes place right away. Can't rule out a test or minor rise above Wednesday's highs to 2155-60, but daily closes under 2139 should let at least a 2-3 day pullback unfold, which might not get underway until Expiration, or the following week. For now, upside looks limited for stocks over the next week, and extreme selectivity is needed with many indices and sectors right up against former highs.
Technical Buy ideas: TMUS, K, OLED, NWL, BMY
Technical Sell ideas: URBN, RL, PEP, LEG, CDNS, ATVI
S&P gave some brief indication of trying to correct, but by end of day, prices were right back to near unchanged for the session, inconclusive of any sort of pullback in motion. Prices will at least need to show evidence of getting down under the prior day's lows on a close, and/or under the 5-day moving average, which currently sits at 2137 for S&P futures. On the upside, 2150 up to 2160 should be quite strong resistance heading into July expiration.
According to Stock Traders Almanac, since 1982, the Friday of options expiration week has a bearish bias for DJIA declining 18 times in 34 years. On Friday the average loss is a significant 0.30% for DJIA and 0.32% for S&P 500. NASDAQ’s record is even weaker, down 20 of 34 years with an average loss of 0.47%. The week after options expiration also has a much more negative record of performance than might be expected, with 17 gains and 17 losses since 1982 with an average percentage loss of 0.12% for the S&P going back since 1982. Thus, some stalling out ahead of July expiration very well might initially lead lower into and directly after expiration before a final week rally.
Commodity-wise, Crude oil provided the majority of the excitement volatility wise on Wednesday, as bearish inventory numbers drove WTI down 4%, to just under $45. However, Crude failed to undercut the prior day's lows, and until we see prices move down under $44, the near-term trend is bearish from early June, but remarkably range-bound over the last five trading days as Crude attempts to stabilize near early May lows. The pattern at this point does not look broken despite a bit of technical weakness in the last month, and even sector-wise, recent drawdowns look buyable. Until there is meaningful evidence of real technical deterioration, it will pay to sell rallies and buy dips in Crude, until WTI can climb back over $48.50, or undercut $44.
Charts and additional analysis below.
S&P showed just scant signs of attempting to stallout, but will need to undercut 2137 at a minimum by Thursday's close, and could very well grind sideways another few days before starting at least a minor consolidation-type pullback, which would help to alleviate some of the recent overbought conditions. For now, the intermediate-term view between now and late August is bullish, but the near-term scenario calls for a pullback to relieve some of the recent overbought conditions.
Copper showed some meaningful signs of perking up in the last month, just as US Economic activity has also improved. The pattern in Copper since mid-2015 remains negatively sloped, but the last couple days have brought prices up to test and arguably break out of this minor downtrend, and prices have been slowly but surely stabilizing quite a bit in the last few months. Copper at this point looks like a better risk/reward long than Gold in the weeks ahead, given improving economic data while Gold is near-term overbought with massive Speculative long positioning.
US Economic data have been slowly improving in the last month, as seen in this Citigroup Economic index rising back above both former highs from the last 6-8 months. This rise has largely coincided with the move up in both Treasury yields and Copper in recent weeks, and paints a more optimistic picture of the US Economy than what was seen a month ago. This Economic Surprise index has now jumped to the highest levels since early 2015.
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