June 29, 2016
S&P SEPT FUTURES (SPm6)
1997-2000, 1969-73, 1953-5 Support
2029-30, 2041-5, 2050, 2075 Resistance
S&P Futures: (2-3 days)- Upside limited- Use strength to sell for pullback back to lows. Continuation of Tuesday's bounce possible to 2041-5 or even 2050, but doubtful this move gets over 2060 without making a retracement back to lows as a bottoming process to this pullback begins. Technically i think we're closer to the END of the post BREXIT pullback, than the start of a larger decline.
9 SHORT IDEAS to consider after this bounce: "Newton's Nine" Shorts- (1-2 week timeframe)
TIF $59.07- Tgt $55, Stop 61-Today's bounce insufficient to regain Jan lows
GRMN$40.61- Tgt $38.40, Stop $42- February pattern increasingly shaky while LT bearish
AAL $26.55Tgt $23.50, Stop 28.25- Airlines continue to underperform. This is one of worst
ANF $16.95- Tgt $15.42, $14, Stop $17.66- Breakdown of May lows makes downtrend continue
OI$17.18- Tgt $15.50- Stop $18.10- Breakdown of two-month base a negative
GPS- 20.74 Tgt 18.50, Stop 21.75- Mild bounce since May as part of larger bearish pattern
RL- 87.89 Tgt $79Stop 92.50 - Range since Feb likely to lead to downside breakout
URBN- 26.16 Tgt $24.3Stop 27.5-Ongoing bearish laggard- Likely to break to downside
DV- 16.75- Tgt 15.50, $12- Stop 17.80- Consolidation since Feb likely breaks down lower
BONUS Short idea- KSS- $37.61- Tgt- 34.50- Mild neutral range as part of ongoing poor technical which likely has one final break to downside before any meaningful rally
Upside should prove limited into end of month, with 2041-5 area being very important for Wednesday/Thursday. Given the ongoing sharp downtrend that erased over 1/3 of the four month rally in two days' time, its tough to put too much trust in this move just yet, though a number of factors I mentioned DID suggest that a rally was close.
I think it's tough however to think we're there just yet, (At the absolute lows) given 5 important reasons
1) S&P, NASDAQ haven't recaptured the area near June lows that was broken(They DID recapture MAY though, which does have some minor importance, and means that a bottoming process likely has begun.)
2) Counter-trend indicators from Demark have failed to show much signs of exhaustion on Tbonds, Treasury yields and German bund yields which were all instrumental in leading stocks "DOWN" . Until these can bottom out in convincing fashion, and lead stocks higher, I think the odds favor a retest and slight break into early July
3) As mentioned in prior reports, a few Fib and Gann based cycles target next week for a change of trend, and doubtful that this comes early. Therefore, while today can't be written off solely as short-covering, technically it's wise to initially sell into the sharp rally following a steep downtrend, and let the market stabilize a bit before attempting to think the lows are in.
4) Neither Treasury yields, nor GBPUSD (Pound Sterling v USD) made much progress off the lows, while the Small-cap underperformance continued. I think we'll need to see more evidence of these turning higher to have faith in equities rallying.
5) Seasonality concerns center on this Thursday, the final day of 2Q which historically has been negative for stocks, with the last 17 of 24 yearsbeing negative, while NASDAQ has been down the last 6 of 10(Stock Traders Almanac) For now, we've seen a sharp bounce within a short-term negative trend which looks close to ending, but not quite there.
One should use movement to 2041-5 to consider adding hedges and for aggressive traders who utilize stops, even shorting. Then pullbacks into next week would be a better risk/reward to buy into. (This bounce today, if it extends again tomorrow, a very real possibility, will have a positive effect on momentum on a 2-3 week basis, making any subsequent weakness likely show positive divergence, and be buyable. For now, call me skeptical that lows have been put in. Above 2050 my opinion would waver a bit on this thinking and 2075 remains the level, which if exceeded at this point, calls for investing and following the move, thinking that 2119 highs from two trading days ago can be tested and exceeded.
Tuesday's rally stalled out a bit when German Bund yields pulled back under Monday's lows, which caused a similar decline in US Treasury yields. Pound Sterling, meanwhile made just a small rally on Tuesday, definitely not anything to suggest complete stabilization that any type of low had been made. Given that these both sold off coinciding with Stocks in the past week, yet have barely budged off the lows, they're both important to mention. High Yield, however, has remained resilient, and is one major reason why the selloff from early June is not likely the start of a larger setback. Despite the technical weakness present in much of the developed and Emerging world, the US equity market continues to be one of the better areas to invest, with no signs that this needs to end anytime soon. Charts and additional analysis below.
This volatility certainly isn't for the faint of heart. The one-day 49% VIX move was followed by an equally severe plunge over the last couple days, with today's 18.75 close potentially representing a good risk/reward for Implied volatility over the next week given that the trend hasn't materially changed with Tuesday's move. VIX has pulled back to near good support and even on a Summer rally, I would expect a retest that could allow VIX to move back to the mid-20's and at least attempt a challenge of highs before a larger implosion. Technically, from a trading perspective, today's pullback appears like a good risk/reward for protection into early July.
The NASDAQ has made potentially a very important move on Tuesday with its "recapturing" of May lows, something which coincidentally occurred with a TD Sequential 13 buy signal on daily charts. Spending any length of time back into this range presents a far healthier picture than following Monday's close on a breakdown, and the real key will be to maintain or hold these gains into end of week. For now, some "Backing and filling" could happen, but important not to get down under 4200.
WTI Crude oil's recent attempt at holding prior lows is a temporary positive, despite the downtrend in place since June 8. Crude and Equities have been trending rather closely yet again, so it's worth mentioning that $50 remains key on the upside while 45.83 down to $45 is important on pullbacks. The broader trend at this point remains intact and positive from January, despite some "wobbling" in prices.