July 7, 2016
S&P SEPT FUTURES (SPm6)
2075-7, 2056-7, 2043-5 Support
2104-6, 2119-20, 2132-5 Resistance
S&P Futures: (2-3 days)- Mildly Bullish, growing more positive over 2104 for a move to 2122-3- The price action in the days ahead could very well bring about a move back to new highs after the Jobs (NFP) number this coming Friday. Our weakness into Wednesday's trading proved short-lived, and the bounce in TNX, Crude Oil and USDJPY looked important in helping equities to turn back higher, something that looks to continue.
S&P managed to hold well above where Europe retraced to, and US indices continue to be in much stronger technical shape than most of the world- S&P barely retraced 30% of last week's rally before pushing back higher to near 2090 in S&P futures, and 2100 in SPX cash a mere 35 points from new all-time highs. Given that Yields have led the move down in Equities and now are showing signs of trying to stabilize, it pays to be long given the resilience in equities NOT moving down while the Advance/Decline recently pushed back to new all-time highs on a weekly close. This Friday's NFP number could prove to be a catalyst, but it's worth considering closing out some shorts with S&P over 2065 and looking to press longs over 2105.
European Banks hold the key and downside should prove limited from here, and allow for an upcoming bounce- As charts of the STOXX Banks index, and EUFN (ETF) show, counter-trend signs of exhaustion will be present Thursday using Demark indicators on daily charts of both the STOXX Banks index along with German Bund yields in unison which could serve to cause a Global bond selloff at a time when everyone expects US Treasury yields (10s) to go to 1%. The combination of bullish sentiment and stretched oversold conditions in yield which have triggered counter-trend BUYS in the last 1-2 days could be important if a Strong Jobs number arises Friday. For now, the risk/reward doesn't justify long Treasuries at current levels and it pays to consider selling TLT or buying TBT, technically speaking.
Crude oil showed signs of reversing right where it needed to near late June lows, while the Precious metals demonstrated some evidence of stalling out which could lead to an upcoming pullback in the days/weeks ahead, as the metals and metals stocks have gotten very overdone.
Sector-wise, the pullback in Financials has reached former lows vs SPX and should stabilize, particularly if Yields are on the verge of bouncing. Healthcare meanwhile, made an attractive near-term breakout today to followthrough on strength its been showing all week. Both of these sectors seem attractive to buy for risk/reward purposes, with a preference towards Healthcare.
Charts and additional analysis below.
S&P stabilized above areas thought to be important, 2054-6, 2043-5 and managed to rally sharply into the close as TNX, Crude oil and USDJPY bounced. It won't take much at this point to get S&P back to new highs, but the key area to watch looks to be 2105 for Futures and 2108.71 for SPX cash. Closing over these levels on an hourly close should help prices extend back to new highs. Stops would be placed at Thursday's lows of 2065.
Healthcare looks attractive to rally further given today's relative breakout vs the SPX to the highest levels since early February. This sector began to gain ground in March and has continued in the last week, showing the best performance of any of the major SPX GICS Level 1 groups on Wednesday and leads all other groups over the last five trading days as the best performing sector.
German Bunds look like a sell at current levels technically from a counter-trend perspective (A BUY for yields here as shown on yield charts) as counter-trend indications have formed using Demark indicators on daily charts and should provide a bounce in Yields from down near -20 bps to near 0 in the days and weeks ahead. This in turn should fuel the Financials, which should bottom out as the STOXX 600 Banks index holds 2011 lows and turns back higher. For now, being long German bunds looks like a poor risk/reward after the recent gains (pullback in yields) and looks attractive to consider betting the other way.
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