August 31, 2016
S&P SEPT FUTURES (SPu6)
2167-9, 2157-9, 2139-41 Support
2182-3, 2190-1, 2200-2 Resistance
S&P Futures: (2-3 Days) Bullish- Tuesday's minor weakness failed to do any technical damage, and the trend remains mixed, with a bullish bias for prices to rise back to new high territory. Yesterday's comments remain in place..For now, until prices can get OVER 2186.75 in S&P futures, or last Friday's highs, the trend remains near-term range-bound. Rallies should begin into and after Friday's Jobs report, with any near-term pullbacks likely buyable with thoughts that last Friday's lows should NOT be taken out before prices move OVER 2186.75.
SX5E-Bullish, with targets near 3100-3150 into early September. Tuesday saw a rally back to multi-day highs for SX5E and additional strength here looks likely into end of week. Targets Only bearish on move under 2890.
HSCEI- Bullish- Tuesday's close at new multi-day highs after hitting trendline support is bullish, and should help this extend to 9731, with movement over that leading to 10,000
Longs/Shorts for a 3-5 day period:
Technical Longs: C, AFL, CINF, MMC, AON, AIZ, GRUB, PAYC, YUM
Technical Shorts: AEP, FE, PNW, PPL, SHLD, TRIP
Equity weakness has done no damage, & technically speaking, it's still right to expect move to test/exceed highs. Minor pullback to the tune of -0.20% having little or no effect on the larger 45 day trading range in place, with Tuesday's 2176.12 close in SPX cash index finishing within 3 points of levels hit back on July 20th. The weakness Tuesday failed to take out the prior day's lows, and both bonds and stocks sold off fractionally, as the US Dollar's advance continued.
A few important points to make regarding Tuesday:
1) Financials managed to break-out of their relative range vs the SPX, with the Guggenheim Equal-weighted RYF closing above its one-year trendline vs SPY. Sector ETFs like KBE, XLF, KRE, IAI, RYF all moved to new highs for 2016, while the Insurance rally (mentioned yesterday) continued ever higher, with KIE extending its gains further in all-time high territory. This should give a boost of confidence to a market which has been churning with little or no direction, and many on Summer vacation fail to recognize the extent of the bullish sector rotation in place within these groups when noticing the net change of US Equity indices. Yet, stocks managed to show some very positive breakouts above intermediate-term trendlines in a formerly lagging sector like Financials that has only recently begun to show meaningful signs of mean reversion. As of Tuesday's 8/30/16 close, Financials were the Best performing sector for August, and with one trading day remaining, had returned 3.48% for the month. An impressive showing no doubt. If the upcoming Jobs report delivers and the FOMC finds itself with markets at or near highs, you can expect this sector to likely continue to shine throughout September, despite the bearish warnings on poor performance. For now, there remains little to no signs of any sort of price deterioration.
2) US Dollar rally has coincided with Commodities cracking under key July support lows, which also has had the effect of verifying the recent intermediate-term trendline break as being a legitimate trend violation. Commodities like Gold have flirted with breaking down, and another few days of Dollar strength would continue to likely put pressure on this group. However, if any sort of material Jobs weakness comes about on Friday, the majority of this Dollar strength could be given back, and would be a buying opportunity for Gold. For now, under 1310 in Gold could lead quickly down to initial support near 1285.
3) An odd day Tuesday when stocks sell off, yet Financials are the sole group "in the green" to show solid 0.80% performance while Utilities selloff more than 1% on the session. The Defensive trade continues to underperform, and XLU getting under early month lows on a relative basis should give way to 2-3 additional days of weakness for "the Utes" Transportation meanwhile along with Small-caps showed steady outperformance and Airlines closed at multi-day highs (XAL) which is another encouraging point about Tuesday's trading when scanning for sector out/underperformance.
Some charts and additional comments below
Financials outperformance relative to the broader market is a key technical development to highlight ahead of one of the most important Fed meetings of the year in a few weeks. A breakout in relative terms from a group which represents 16% of the SPX, the second largest group to Technology, is a constructive move which should add some "tailwind" to the SPX as it approaches "Jobs Friday" with the NFP report due on 9/2. For now, with KBE, KRE, IAI back at new highs for the year, this sector should continue to be overweighted tactically for additional gains.
Continuous Commodity index's crack of key support at July lows suggests additional near-term weakness for Commodities which could also negatively affect Energy and Materials in the short run. The US Dollars strength has been directly responsible for weakness in the Energy and Grains complex for commodities priced in Dollars, and many such as soybeans, Wheat, Crude oil, Gasoline, Cotton, Sugar all fell more than -0.70% on the day Tuesday. This seems to be a breakdown worth following in the short run, which isn't likely to reverse course right away.
Utilities weakness is also something to highlight, given the break below early August lows and its own violation of this longer-term trendline. An additional 2-3 days of weakness looks likely for the "Utes", and Defensive still look early to overweight into this Friday's Jobs number, given the breakdown with accelerating downside momentum.
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