July 19, 2016
S&P SEPT FUTURES (SPm6)
2140-2, 2131-3, 2109-10, 2085-7 Support
2160-2, 2180-3 Resistance
S&P Futures: (2-3 Days) Bullish into Wednesday/Thursday unless 2143 broken on a close, with upside targets 2180-5. Heading into Tuesday, upside looks limited, but still no meaningful signs of turning lower which likely means attempts to fade this rally remain premature - Upside targets lie at 2180-5 while a move back down under 2143 is a necessity before turning too negative
Despite the risk/reward for stocks being seemingly poor in the short run after this recent surge, there remains no real signs of price damage yet to think the selloff should happen right away. Most charts of TNX, USDJPY, QQQ, SOX, EEM and S&P futures still show a good likelihood of 2-3 days MORE of rally even in the short run, which would put the chance of any sort of real drawdown before Wednesday at a minimum- QQQ broke out after several days of stalling near former highs, and Monday's move was a legitimate stab higher, which helped Technology outperform and could help QQQ reach upwards of 115-115.75 before any meaningful stalling out.
Sentiment has begun to ramp up noticeably per sentiment polls such as DSI, Investors intelligence and CNN's Fear and Greed, while Equity put/call data has fallen down to .52. The VIX meanwhile is testing lows of the last couple trading days right above 12, but no noticeable signs of positive divergence here in recent days. While this data has room to expand further, its worthwhile to point out that the last couple weeks have brought about a meaningful bullish shift in sentiment which was largely lacking in the past few months.
Overall, we've seen some evidence of mean reversion at work in recent days as today's top performers included 2 of the 3 worst performing sectors of the year- Financials and Technology, while Materials has also had a very good bounce in recent days, outperforming all other S&P sectors on a rolling 5 day period. Bottom line, we'll hold out for a move down under 2143 on a close to think S&P is turning lower. For now, despite entering the week with a defensive bias, Monday's action just wasn't sufficient to think this is happening right away. Furthermore when eyeing several of the other asset classes that have been rallying along with S&P, most of these remain 2-3 days away before lining up in unison with counter-trend signals of upside exhaustion.
So despite the urge to sell, S&P very well could reach 2180 before any peak while NEEDING to undercut 2143 on the downside for proof of a bearish pullback. Not the best risk/reward and this will have to continue to be monitored in the days ahead.
Charts and additional analysis below.
Still no meaningful evidence of any real downturn, despite near-term overbought conditions, rising bullish sentiment with a number of global indices and ETFs still near former highs. However, this two-day consolidation certainly hasn't shown any signs of needing to turn down right away, and often these churning actions near the highs lead to one final push higher which is accompanied by negative divergence before prices turn down. While a negative bias was forecast for this week, prices still haven't given much evidence that this is happening right away and we'll need to see a move down UNDER 2143 to have confidence that this move is underway. For now the next major area of resistance is above at 2180-5 so it's possible that a push higher into this zone happens before prices fade. Overall, not the best risk/reward for longs, with 2180-5 being a strong area on the upside, while prices would need to violate 2143 before even having any kind of concern. For now, selectivity is important, while waiting for some confirmation before turning too negative, even on a short-term basis.
Technology's rise on Monday was important and positive technically as XLK, the Technology Select SPDR ETF managed to exceed an area which resulted in highs being made back this past Spring along with last November/December at the highs. Monday's acceleration higher has no real resistance until 46.50 with a possibility of $48.50 before this move shows some resistance. This pattern is commonly known as an ascending Triangle pattern, and often when exceeded, can result in uninterrupted upside acceleration in the near-term. In this case, Counter-trend signs of upside exhaustion are at least 3-4 days away, which likely can let this move extend for the next few days before any real stalling out.
Dollar/Yen has made one of the stronger moves in the last few years in its quick move from 100 to up near 106, but still shows signs from both a price and time perspective that this move might have a bit more to go on the upside. Demark TD Sell Setups look to be at least 2-3 days away and will likely coincide with the US Dollar making a bit more upside progress to up near 107.50 before any real resistance. As shown above, the longer-term downtrend remain intact, so this bounce from now is still a counter-trend bounce as part of this downtrend.
Investors Intelligence latest poll is another example that reflects increasingly more bullish sentiment, which was largely absent as of two months ago, when bearishness was rampant. Given the Spread reaching nearly 30 points between Bulls and bears while the Fear and Greed index is now at the highest levels since 2014, we look to be closing in on at least a minor peak in equities, (purely from a sentiment perspective) precisely at a time when most investors are just starting to join the rally in projecting upward prices for the months ahead. While this Spread has room to move a bit higher, it's important to note that the last couple weeks have brought about an important sentiment shift after widespread pessimism that likely will lead to some upcoming consolidation in the Fall as opposed to thinking the Market rally continues uninterrupted.
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