July 26, 2016
S&P SEPT FUTURES (SPm6)
2150-3, 2139-41, 2130-2 Support
2163-5, 2172-4, 2182-4 Resistance
S&P Futures: (2-3 Days) Neutral consolidation continues. S&P futures lie 2 points from levels hit LAST Monday, and only 5 points above closing prices from 7/14 on S&P September Futures. Until we see evidence of daily closes down under 2151 at a minimum, last week's lows, trend is neutral and can't rule out a move up to 2180-5. Under 2151 on a close likely would bring about declines to 2120. For now, it pays to trade the range.
Ahead of this week's FOMC and BOJ meetings, equities continue to show very little sign of net change, as this very tight range has directly followed one of the more explosive runups we've seen in the last year. While upside seems limited, the consolidation is going a long ways towards helping to alleviate recent overbought conditions. It simply doesn't pay to take big bets until this range is violated in either direction. For now, a few key themes seem to be playing out:
Energy decline accelerating- As mentioned in this week's Weekly Technical Perspective, the decline in WTI Crude has affected Energy in a very stealth manner over the last month, but has caused this sector to underperform all other nine S&P sectors. OIH broke down vs SPX relatively speaking last month, and now OIH managed to close at new lows for the month of July. While Crude is very close to initial support, this sector remains an underweight, and bounces should be used to sell into Energy.
Bond yields showing greater signs of turning down- German Bund yields fell to nearly -0.04 bps after hitting 0 and have now declined for three straight sessions after finding strong resistance near the three-month downtrend extending from April highs. 10 and 30-year Treasury yields have stalled out, and yields globally should begin to pullback in the days and weeks ahead after hitting strong resistance.
Additional near-term bounce possible for Retailing- Retail stocks have helped Consumer Discretionary to outperform Consumer Staples for the month of July after having underperformed for most of this year. While this rally looks to be just a bounce, stocks with poor technical patterns like JCP, SHLD, GPS, KMX, JWN, ROST have all rallied more than 3.5% in the last five trading days.
Key Earnings related moves to take note of:
Gilead Sciences (GILD-$88.55) While GILD beat on both revenues and Earnings, its poor Hepatitis C revenue and Harvoni sales missed expectations and continued to fall. The stock fell $4 from its Monday close, and remains in a base-building process after having attempted to stabilize from May. Pullbacks look attractive to buy technically provided one adheres to stops near $777.92 at June lows, and will now need to climb back up over 88.55 to give this a chance for a run up to the mid-90s which has defined its downtrend from last June.
Texas Instruments (TXN- $66.22) Strong earnings beat and upward guidance from TXN is causing this to jump up north of $69 post close on Monday, or more than 5% above its closing price. This stock has continued to outperform after breaking out of nearly a one-year ascending triangle formation from last year. Upside technical targets lie near $80 and then all-time highs near $99.78, which look out of reach right now, but a level to consider as an intermediate-term target.
Las Vegas Sands(LVS-$47.80) LVS' surge up to near $50 post close keeps the near-term stabilization efforts in many of these casino stocks intact. It's rival WYNN has outperformed all other stocks within the Consumer Discretionary sector this year, up 40+%, while LVS is gradually carving out what looks to be a double bottom pattern. Additional strength looks likely to $54.80, the March highs, while a move over this should propel LVS up to near $63-$65.
Apple (AAPL- $97.34) While AAPL results don't come out until Tuesday post-close, its worthwhile to mention that this stock has just cracked a one-month uptrend from June and remains trending down for the last 14 months after it peaked out in the Spring of 2015. It certainly is a laggard compared to stocks like GOOGL and for now, should be avoided until this can show more signs of stabilization and strength. Key to remember: Cheap doesn't always equate to a near-term buying opportunity, and in this case, the stock remains technically broken on an intermediate-term basis from last year, with support in the mid-$80's.
Very little to do in the near-term when looking at S&P which has been range-bound largely since mid-July's 7/14 close. Pullbacks require a move under last week's 2151 for any type of signal while upside should be capped at 2172-5 with an outside chance of 2183-5. For now, it's wise just to trade the range, and ignore all outside news.
Energy followup- Monday's breakdown in OIH under trendline support argues for additional near-term weakness, and this directly follows WTI's pullback in recent days to right near its 50% retracement of the January-June rally. While WTI could stabilize near-term at $42.50-$42.75, the recent technical damage in Energy suggests a topping process at work in this sector. The breakdown in relative terms last week now seems to be leading to absolute weakness, which should keep this sector as an underperformer.
Retailing has bounced in the last month, helping Consumer Discretionary to outperform Consumer Staples after a near 500bp period of underperformance in a positive year for stocks. While the larger period of defensive positioning towards Staples still suggests this sector is one to favor OVER Discretionary on an intermediate-term basis given the breakdown over the last 8-10 months, for now, we're seeing a bounce in Retail which has helped many poor technical stocks like JCP, SHLD, L, GPS, KMX, JWN, to bounce to the tune of more than 3.5% in the last week. This relative chart above of XRT v SPX shows this ongoing bounce as part of the downtrend, and could lead to additional near-term strength in Retailing before this fails.
German Bund yields seem to be peaking out, right near a key level of overhead supply drawn by the downtrend from this past Spring highs. Three straight days of yield weakness in German bunds likely should lead US Treasury yields to follow suit in the days and weeks ahead, which could see TNX pullback down to near 1.45%. For now, it's likely that additional yield weakness happens over the next 2-3 trading days into and through the FOMC meeting into the BOJ meeting on Friday, where stimulus is widely expected.
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