August 4, 2016
S&P SEPT FUTURES (SPm6)
2139-41, 2125-6, 2102-3, 2080 Support
2160-3, 2168-70, 2177-9 Resistance
S&P Futures: (2-3 Days) Thursday morning's bounce has extended back above 2160, which is crucial area for the bulls to regain, and will be important for today and tomorrow on a closing basis. For now, this is the key line in the sand where above 2160 is bullish, and below, bearish. As told yesterday, 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: HD, LKQ, RTN, NEM, CME
Technical Shorts: GES, TIF, SIG, PANW, AAL, SPB, FIVE, FOSL
Wednesday showed some evidence of equities stabilizing right away after this early week support violation and prices are now back at key resistance which will be important for Thursday. There was some minor evidence of Defensive sectors being sold while Financials bonds snapping back positive which was an important sign after having seen yields start to turn back up early in the week.
Overall, could this have been just a one-day affair, yet again, which looked more bearish than it was, while equities rallied to hold key levels into the close? Very possibly. The Total put/call ratio had hit 1.35, indicating a massive demand for index puts early in the week, which as discussed, often has coincided with lows and sharp rallies when this hits extremes over 1.25 (4 instances this year, each resulted in (1-7% returns in the subsequent 10 days after) Many have discussed the seasonally bearish August and September period, and given that indices had rallied in the last month, taking sentiment higher, which might produce a top. For now, still very little overall evidence of this with just minor deterioration in stocks which looks to be trying to snap back early Thursday morning.
The real key for both Thursday and Friday will be for yields to not turn back down too dramatically , and start to test early week highs, which should help Financials make further upside progress, and in turn, for both Europe and US equity indices to turn back higher, with SX5E regaining and surpassing its own resistance near 3050, while the S&P moves back into and over the highs of the recent consolidation, helping XLY, XLF join the recent strength in XLI while Transports climb back to new monthly highs. This hasn't happened as of yet, and for now, indices remain in a state of flux, with the US being one of the technical standouts in the developed world. It still looks possible that the US can avoid a larger drawdown in the next couple weeks and make a final stand, but the next few trading days will be key in this regard.
Some charts and additional comments below
SPX managed to stabilize and turn higher nearly right away after its early weak breakdown, and while an oversold bounce did seem possible back up to 2160, we seem to be attempting to exceed this area now in trading early on Thursday. The ability to hold over 2160 is BULLISH for S&P Futures, particularly on a close, and this will be the true "line in the sand" for near-term which determines whether equities can snap out of any pullback attempts right away and simply move back to new highs. For now, it's right to be bullish OVER 2160, while bearish UNDER.
Ten-Year Treasury yields snapped back after having moved up to near key resistance, similar to the move in Bund yields nearing the 0 line that will be important for the next few weeks. For now the trend in both remains bearish, and this is seen as an important level, just south of 1.58, that held again and is coinciding with a bond rally, as equity futures rally. We've seen bonds and stocks trade in unison quite a bit in the last week, which is unusual, but something to keep an eye on. For now, key levels for Ten-Year Treasury yields lies at 1.45 on the downside. Breaking that would be a bigger negative for the Financial sector, and potentially warning of a larger drawdown for equities. Conversely, the ability to breakout over 1.60 would be a real positive in the short run. For now, this area looks to have held.
Financials was one of the top performing sectors in Wednesday's trading and remains a key piece of the puzzle for equities given the percentage of SPX made up by this sector. As daily charts show of the S&P 500 Financials index, we've seen fairly sharp resistance near 320-330 hold for Financials and could be tested again in the days ahead. Much of this should coincide with Treasury yields continuing to rise, as both yields and Financials made steady progress throughout the month of July. If Treasury yields get back up above 1.60% and Bunds can exceed 0, it's likely that much of this near-term concern on European Financials and US Financials would cease. Getting back above 330 in the S&P Financials index would allow this sector to begin a strong rebound, and should certainly provide a tailwind for stocks. For now, this is a key chart to watch.