August 5, 2016
S&P SEPT FUTURES (SPm6)
2153-5, 2139-41, 2125-6 Support
2168-70, 2177-9, 2183-5 Resistance
S&P Futures: (2-3 Days) Neutral- Prices continue to straddle 2160 which continues to be important near-term and doesn't justify big bets until we see some more definitive resolution of this pattern that's contained prices since early July. 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
Still very little end to the consolidation that's kept Equities range-bound since mid-July. S&P prices managed to bounce back from early week drawdowns and as of Friday morning, are back above the 2160 area, which would necessitate a long bias on a close.
Most of this consolidation is not limited to the S&P either, but causing stagnation in the bond market while a number of Equity ETFs wrestle with former highs created last year. Sectors like Consumer Discretionary, along with Financials have failed to show the same follow-through as the Industrials space, while Technology continues to be one of the better sectors to overweight given this group's ability to clear former highs with above-average strength out of the Semiconductors space and parts of Hardware.
Commodities have attempted to stabilize given the breakdown in the US Dollar index which was seen initially in the Metals and Softs, but now has helped Energy to begin to hold support and bounce just in the last couple days.
For the next few trading days, it will be important to pay attention to how the US Dollar index moves, along with 10-year Treasury yields, High Yield Bond ETF JNK, along with action in some of the Equity ETFs as they continue to challenge former highs of importance. For now, this consolidation isn't necessarily a bearish development given the move that stocks have enjoyed since late June. However, some resolution will be necessary in the weeks ahead back to new highs to have confidence. Failure to definitively breakout where divergences continue to dominate trading will potentially pose problems heading into the Fall. For now, the range continues.
Some charts and additional comments below
This hourly chart of the S&P since early July shows the degree of consolidation that's occurred in the last month. Similar to yesterday, S&P continued to find ample resistance near the 2160 line for Futures. The early attempts at exceeding failed, while Friday morning Futures have yet again managed to rebound back above this area. Being above 2160 is a positive on a close, while below is negative.
Technology continues to be an area that's working very well in this market. Tech managed to outperform all other nine S&P sectors in Thursday's trading, and as this relative chart of MSH/SPX shows, Tech began to accelerate after getting back above former highs in relative terms to the market, and still shows little signs of exhaustion that would signal this move is coming to its end. Further rallies look likely back to the highs of this relative chart, which were made last November.
European banks continue to be one of the more important areas to watch following the recent breakdown and then snap-back up to important resistance which has seen prices grind sideways for nearly a full month. Much of the action looks to be dependent on swing in Bond yields and the ability of Bund yields to get back over 0 would help this group start to outperform more meaningfully
This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice. Newton Advisors, LLC has no duty or obligation to update the information contained herein. Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss. The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.
Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report: This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.