August 9, 2016
S&P SEPT FUTURES (SPu6)
2171-2, 2157, 2139-41, 2125-6 Support
2183-5, 2191-2 Resistance
S&P Futures: (2-3 Days) Bullish- The price action in the Financials should set the tone for the broader market and given the breakout last week in US Financials with European Financials showing strength on Monday with yields starting to lift, it's likely that equities still have some upside, technically. Look to sell for trading purposes up at 2183-5, with closes above likely helping SPX lift up above 2200 into mid-to-late August before peaking. Similar to the message of the last few days, failed bounces that then breach 2141.50, (SPX-2147) could reach 2127, and/or 2076-81
Longs/Shorts for a 3-5 day period:
Technical Longs: DFS, FINL, SLB, FFIV, LKQ, NEM
Technical Shorts: GES, PANW, AMT, AAL, FIVE, FOSL
Still very little net change in US Equity indices, while the underlying sector rotation and volatility in Emerging markets, commodities and the US Dollar tell a much different story. Monday brought about yet again a pullback attempt early on, which failed to gain much traction. Early rallies in the Bond market were rebuffed, and the Dollar finished moderately positive, mostly given the USD rally vs the Yen in recent days. For now, despite some evidence of money piling onto this rally in the last couple weeks, there remains insufficient reasons to think equities are at a top of any sort in the short run. The positive sector rotation, bullish index structure (MID, SML, BWORLD, SPX, NDX moving back to new monthly highs) and positive daily breadth and momentum seem to be constructive forces to keep the rally intact, vs bearish forces of poor seasonality and recent low VIX and Put/call readings. As long as this breakout in the Financials, Technology, Healthcare isn't immediately given back, and indices hold above the recent range, it still looks likely that drawdowns should prove temporary and give way to a move back to new highs for the DJIA and CCMP to join the other indices with a possible date with 2250-70 on SPX before any stallout and selloff from late August.
Three key developments seem worth highlighting in recent days:
-The rally in US Treasury yields on the heels of better than expected Economic data of late
-The breakout in US Financials which was discussed in this past week's Weekly Technical perspective, which has helped the 2nd largest sector per SPX weight move to new highs for 2016
-The stabilization and rally in WTI Crude at a time when the drop below $40 started getting ample attention at precisely the moment Crude had retraced 61.8% of the prior January-June rally.
Some charts and additional comments below
The MSCI AW World index moved to the highest levels since Spring 2015 as of Monday's close, and still shows very constructive price action that should be considered when weighing in on US stocks, and their ability to resolve these recent divergences. While US equities look in far better shape than the rest of the world, the DAX is now flirting with a long-term downtrend which could be broken in the days ahead, and would begin to accelerate if German Bund yields climb back over 0. For now, this movement to new highs doesn't look to be something to sell into right away, and keeps the bias towards buying dips, for higher prices.
Europe's Bank index is a key area to focus on given the volatility in interest rates along with currencies of late, and the ability to close at the highest levels since mid-June should be a positive force for Bank stocks in Europe which might provide some much needed tailwinds to the global equity rally. Upside price targets in the near-term lie near 140, then 145 before stalling out.
WTI Crude managed to bounce right after it retraced 61.8% of the prior January-June rally, and all eyes were focused on Crude right as it undercut $40, which has since rallied along with the US Dollar in recent days, getting nearly up to $43 in Monday's trading. We've seen signs of NonSpec longs reducing exposure to the lowest levels since February given the recent decline, but for now given the damage this remains a bounce within an existing downtrend which began in early July after the break of trendline support. Upside could still carry through to $44.50, or $46 maximum, but would look at any rally in the next 1-2 weeks as being a selling opportunity until/unless Crude can regain some of the recent damage.