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Healthcare woes persist, while fate of USD, TY yields depends on Jackson Hawkishness

August 26, 2016

S&P SEPT FUTURES (SPu6)
Contact: info@newtonadvisor.com

2175-6, 2165-6, 2160, 2139-41      Support
2190-1, 2200-2, 2208-10                Resistance


S&P Futures: (2-3 Days)  Neutral -  Similar to yesterday's write-up, I view Friday's possible course of action as a Coin-flip, with a slight negative bias for pullbacks sometime during the session.  However, meaningful weakness still appears unlikely, and that drawdowns should prove minor with support to buy down near 2165-7, with breaks of that leading quickly to early August lows in the S&P futures at 2141.50. To feel this minor pullback is behind us, September S&P futures require a close back up above 2188.  For Friday, this 2165-7 area is very important in Futures.

SX5E-Bullish, with targets near 3100-3150 into late August-  Nothing changed sufficiently with Thursday's minor pullback, which failed to even break down under Wednesday's lows, leaving the minor rally from late last week largely intact.   Rallies up to 3100 look likely.   Only bearish on move under 2890.

HSCEI- Bullish- Thursday's ability to hold up above Wednesday's lows and produce an "Inside day" should help prices start to turn back higher.  Area at 9340-50 should be support to buy, while any close back up OVER 9640 would mean the move back to 10,000 is back underway.


Longs/Shorts for a 3-5 day period:

Technical Longs: NFLX, GRUB, PAYC, LEN, PHM, PX, EA, FLR, YUM, TLT
Technical Shorts: NVDA, SHLD, LRCX, PH, CAVM, TER, TBT, TRIP, GOOGL



TECHNICAL THOUGHTS


Friday is unlikely to have much decisive price action until Yellen's speech is completely deciphered, despite the fact that it very well won't contain much that will give the market much of a clue.  Economic data really hasn't changed that significantly that would bolster the FOMCs chances of wanting to hike prematurely in an uncertain environment, and the Fed continues to seem more "Dow driven" than "data driven" of late.  

The inclusion of one overly hawkish word in today's market could cause a massive surge in the US Dollar and spike in Treasury yields, while the lack thereof would result in the Dollar likely giving up all the gains from the past couple days.  Moreover, precious metals, in a dovish or non-hawkish scenario, likely would bounce and recoup much of what has been lost in recent days, while Treasury yields would plummet back down towards lows.  In the event that Yellen chooses to stress the uncertainty, yields could very well violate the consolidation that's been in place since mid-July. 

Bottom line, much of Friday will depend on the Fed's interpretation of recent economic data and global stability and how Yellen chooses to phrase those opinions, which often are finely smoothed over in Greenspan fashion like s fine-toothed comb.   The Citigroup Economic Surprise index has weakened over the last month (Economic numbers have been worse than expectations), and still lies around the 0 level after nearly 16 months.   For global assets, the US Dollar index, and Treasury yields will need to be watched very carefully, and volatility in both of those could have big implications for the future course of Financials, energy and materials sectors, and Industrials.

The big disappointment of recent days has centered all around Healthcare, as in the last 12 trading hours, Small Cap Biotech went from the highest levels since January down to new multi-week lows, causing a huge pullback in the XLV, which is now lagging all other sectors on a one-week basis by more than 60- bps, and down over 2.25% in the rolling 5 days through 8/25/16.  (S&P Healthcare index)   Overall,
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Some charts and additional comments below

 

 

S&P broke its pennant by a small amount Wednesday, yet failed to move down under the all-important 2165 level from 8/17 and this will be the important level to watch for Friday.  Under there on an hourly close is bearish, and right to position short with eyes on 2141, and stops on hourly closes back above 2165.   On the upside, its necessary for futures to climb back above and close above 2188 to have confidence that the worst is behind us.  Overall, downside seems limited and should produce a chance to buy with targets eventually up near 2215-20.

 

The huge reversal in Healthcare over the last couple days has broken down to the lowest levels since Spring on relative charts to the SPX and still looks to weaken further in the days ahead, despite getting stretched now to the downside.  This was a fairly robust reversal for Biotech at a time when it could have closed at new six-month + highs, so the next week will be important in seeing whether relative charts can recoup some of this damage.  Until they do, this sector is a laggard, and likely underperforms as Clinton's lead in presidential polls shows any signs of widening further.

 

Any non-event, or non-mention of a September hike and/or diminished expectations for hikes this year would cause the US Dollar to lose most of the ground its gained in recent days, and would fall back down to, and under recent lows.   The structure of the pullback thus far has taken the shape of a three wave move with possible fourth wave type consolidation in the last week.  Any additional weakness would likely extend to test and break June lows and potentially reach late April lows.  This in turn would help commodities bounce and help Precious metals regain their recent losses.  Conversely, breakouts of this downtrend for USD would be quite bullish for Growth vs Value and quite negative for precious metals.  If Gold breaches 1300 in such a scenario, little support is found until near 1200.   For now, the odds suggest a Dollar weakening and it's right to expect some backing and filling in the US Dollar index, barring any kind of hawkish rhetoric from Yellen.

 

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