August 10, 2016
S&P SEPT FUTURES (SPu6)
2168-70, 2157-8, 2139-41, 2125-6 Support
2183-5, 2191-2, 2200-2 Resistance
S&P Futures: (2-3 Days) Bullish- Technology, Financials along with Emerging markets remain the key drivers of stocks in the near-term, taking turns in showing bursts of relative strength, as Tuesday's Semiconductor outperformance picked up where the Financials left off Monday. Key for S&P Futures remains 2183-5, and above would drive up to 2200 and above into early next week before any peak, with late August also being important 8/26-8. Pullbacks should find support near 2167-9 with only a daily close under 2141 changing the thoughts for a bullish stance in the short run.
Longs/Shorts for a 3-5 day period:
Technical Longs: EBIX, DY, ARIA, ATVI, DFS, FINL, SLB, FFIV, LKQ, NEM
Technical Shorts: GES, PANW, TRIP, COH, STRA, AMT, AAL, FIVE, FOSL
Yet again, it's more of a story about a market of moving stocks, vs. a stock market to watch all that carefully in the short run. S&P barely made any headway higher, rising up right to initial resistance at 2183-5 before failing to close nearly flat for the day, while breadth just barely finished positive, with a slight advantage to rising stocks vs declining. Energy was the sole sector to finish up or down (in this case) more than -0.50% while the US Dollar and Treasury yields reversed early gains to finish negative. The NASDAQ Composite successfully joined the recent push to new all-time highs (when not measuring for inflation) with an intra-day spike to new all-time highs and then new all-time high daily close above its former record set last July 20, at 5218.86. Both Transports and Industrials at this point lie slightly below highs set this past July on 7/20, & 7/14 respectively.
Tuesday's weaker than expected economic numbers seem to have halted the bond decline in Germany and US, just as last week's positive jobs report coincided with a meaningful back-up in yields. By the close, US 10-year yields had given back all early gains and finished at 1.55%, just at a time when both UK Gilt yields had been flirting with record lows while Spanish 10s had just dipped under 1% in Yield terms as well. If in fact, a sharply lower productivity figure IS indeed important, and yields start to plummet along with the US Dollar, that would set up a possible 1-2 month acceleration in commodities higher, at a time when many felt the Dollar should rebound. Precious metals, in particular, would stand to do well, while the ongoing strength in metals and mining stocks would also continue.
To repeat yesterday's thoughts as a summary, the positive sector rotation, bullish index structure (MID, SML, BWORLD, SPX, NASDAQ Composite, 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 to join the other indices with a possible date with 2250-70 on SPX before any stallout and selloff from late August. In this scenario, DJ Transports and Small-caps would do relatively well over the next few weeks, as the former laggards continue to mean revert and get "all investors aboard" during a seasonal time when the market could prove vulnerable into September. For now, selling stocks still looks premature.
A few new developments to mention:
-German DAX managed to breakout of its 15-month downtrend on Tuesday, something that most other European indices have not yet accomplished. (SXXP requires a close above 359, while SX5E needs to eclipse 3200) Both SX5E and SXXP DID manage breakouts of lesser duration Tuesday, but nothing as prominent as the DAX, which was largely led by Autos (BMW, Voelkswagen) Airlines (Lufthansa) and Insurance (Munich Rueckversicherungs-Gesellschaft) which all finished up over 3.5%. Tuesday's surge for DAX managed to hit new highs for 2016, paving the way for DAX to rally further up to near 11,000, or the highest level since early December 2015. While Europe has lagged the US substantially this year, the outperformance in recent days does look to continue in the short run.
-US Semiconductors have rallied back to near former highs while counter-trend indicators remain premature to think this group is peaking. Semis within Tech, along with Financials continue to be one of the key areas that are working in this market, along with the Metals and mining sector
-STOXX 600 European Bank index managed to close at the highest level in more than a month. While the SX7P has one-year trendline resistance up near 140, for now there seems to be little to no direct resistance and should spur on this group to still outperform in the near-term.
-Chinese stocks seem to be "on fire" in recent days, with multiple big percentage moves among some of the more popular names, while the Shanghai Composite and HSCEI flirt with their own breakouts. The Emerging markets never really settled in mid-July after the initial surge to six-month highs, but many have continued up further, with minor breakouts in China, Mexico while Brazil flirts with a multi-year breakout right during the Olympics as Rouseff's impeachment is being put to a vote to the Senate.
Some charts and additional comments below
The NASDAQ Composite has just broken out to new all-time highs on a non-inflation adjusted basis Tuesday, exceeding the former peaks from mid-July on both an intra-day and closing basis. This helps the NASDAQ join the NDX, MID, SML, SPX and others in moving back to new highs and gives this rally an added level of conviction. As stated previously, while sentiment should continue to grow more bullish, we'll need to see evidence of trend reversal before turning too bearish.
The German DAX looks to be leading Europe on the upside, as might be expected, and Tuesday's rally and close up above Spring highs and its 15-month downtrend are positive developments which suggest an additional lift to test 11,000 in the weeks/months ahead.
The ongoing rally in Emerging markets looks to be leading to a rally now in China which had backed off from mid-July, but now appears poised to test and probably break the upper edge of resistance near 3070, which would take prices to 3100 and above. Quite a few stocks like SINA, YRD, WB, Tencent, have shown solid outperformance of late, while others like CEO, BIDU, SOHU, have lagged. In the near-term, its fair to say the rally in US back to new high territory while the MSCI AW index also hits new yearly highs is leading both Europe and Asia to play catch-up to some extent.
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