August 18, 2016
S&P SEPT FUTURES (SPu6)
2165-6, 2160, 2139-41, 2125-6 Support
2190-1, 2200-2, 2208-10 Resistance
S&P Futures: (2-3 Days) Bullish- Wednesday got right down to key 2167 support, but bounced hard following FOMC minutes into the close, giving few signals as to any impending downturn. The grinding uptrend which has gained a bit of ground since July 14 looks to be intact, and unless 2167 is breached on a close, it's right to buy dips and expect 2189-91 to be tested and taken out.
SX5E-Bullish, with targets near 3100-3150 into late August- Wednesday's fourth straight down day failed to do much technical damage, and similar to the DAX, brought prices down right to the area of last week's breakout. This should be a chance to buy dips with thoughts that 3100 and then 3150 can be tested in the weeks ahead prior to any real top. Only bearish on move under 2890.
HSCEI- Bearish on a 2-3 day basis after Wednesday's close fell under the prior day's lows and formed what looked to be near-term reversal pattern. Pullbacks down to near 9450 look possible but should be used to buy dips for a move back up to near 10,000.
Longs/Shorts for a 3-5 day period:
Technical Longs: PX, CME, FLT, APD, PXD
Technical Shorts: GOOGL (769 tgt), PM, MO, COH, STRA
Still difficult to have much of a strong directional opinion following Wednesday's trading, and yet again, the FOMC minutes left many investors completely perplexed as to the right message. A split decision as to whether to hike rates generally translates into non-action given the seasonal weakness that can traditionally take markets lower during September/October. As many are well aware, the FOMC has become very much "Dow Dependent", as opposed to strictly "Data Dependent". IF the economic data is mixed regarding a rate hike while asset prices are resilient, several things need to happen in the next 30 days to justify any type of hike. Economic data needs to improve quickly, and the global equity rally from late June needs to continue uninterrupted. Third, the FOMC will need to take on a far more hawkish tone next week at Jackson Hole to "prepare" the market for any sort of hike, emphasizing the positives sufficiently while ignoring the lack of global growth. At present,, Fed futures show roughly a 22% chance of rate hikes for the next meeting. Overall, it looks unlikely that anything will be done as multiple things need to "go right" before any type of hike can occur, even by a minor amount. For now, this indecision is something which likely doesn't coincide with a market top, but one which could keep equities slowly trudging higher, as many sit on the sidelines and scratch their heads.
One thing's for certain.. Treasury yields and German bund yields certainly haven't given much indication that broad-based economic strength is right around the corner. If anything, the trading range over the last month as part of this downtrend still suggests a probable break to the downside into the Fall period, unless economic data improves substantially, or a much more hawkish tone is adopted. Given that yields haven't followed equities higher during their rise, any pullback in stocks during late August or September certainly wouldn't cause an exodus out of Bonds. If anything, the flight to safety that's driven USDJPY lower also would help Global bond yields continue lower as well, with breakdowns to new lows certainly possible.
For now, not much has changed with the outlook nor trend for Equities, for Bonds, or for the US Dollar and commodities, as both the US Equity market (indices) and bond market have been nearly unchanged for the last month. The Decline in the US Dollar is ongoing, while Crude's gains continue, and Precious Metals seem to be basing for a final push higher post Jackson Hole, if and when "LACK" of any true hawkishness causes rates to plunge yet again and breakdown out of recent trading ranges. Bottom line, still difficult to be bearish on either stocks or bonds here, and expect 1-2% gains out of equities, while a larger breakdown in the US bond market
Some charts and additional comments below
S&P's rise from key support at 2167 keeps this support intact as having significance, and the degree of the rally from yesterday's lows suggests that very little technical damage has taken place as of yet which would prevent a move back to new highs. For now, 2190 remains important on the upside while Wednesday's lows will serve to guide the pullbacks. Barring any break of either of these areas, the trend from July remains range-bound, yet upward sloping with a bullish bias.
STOXX Europe 600 Banks index looks to have begun to rollover as of Wednesday, something which will need to be watched carefully given the ongoing intermediate-term downtrend in place along with no meaningful evidence that Global bond yields have bottomed out. For now, this minor uptrend from late June remains in place and any 2-3 day pullback would still be considered buyable for a possible breakout attempt again above 140. However, this might take some time to bottom out, and while lows just below 120 don't look to be immediately tested or breached, forming a longer-term low might take some time until the charts of both US and European bond yields start to strengthen a bit more.
US 10-Year Treasury yields remain very much locked in range-bound consolidation, not unlike what's going on with Equities. At Wednesday's close, yields were practically at the same levels as when reached back in mid-July, making both bonds and equities very much range-bound and not showing much underlying volatility. This range extends from 1.44 on the downside to 1.61 as resistance, and will need to be broken to have confidence of a larger move getting underway. For now in the next 1-2 months, it's thought that yields should still test lows and breakdown underneath before bond yield lows are in place.
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