January 11, 2017
S&P MARCH FUTURES (SPh7)
2254-6, 2244-6, 2228-30 Support
2269-70, 2277, 2286-8, 2295-2300 Resistance
S&P Futures: (2-3 Days) Bullish- Similar to yesterday, insufficient evidence of any real weakness with prices range-bound since this time in mid-December when Equities made a minor peak. NDX still pushed higher again on Tuesday, lifting it further to all-time high territory. 2274-7 marked the highs of the last 3 days, so this is the key near-term level to overcome. After, we could see brief rallies, but doubtful S&P gets over 2295-2300 without pulling back. Under 2254 leads to a test of 2228 which still seems premature.
SX5E- EuroSTOXX 50- Bullish- Range-bound now for seven straight days, while UKX has been higher for 19 of the last 22. A move up to 3360 still looks more likely than not. Europe remains the weaker of the two vs US, so still right to underweight STOXX 50 vs US.
HSCEI- Bullish - No change- Another 2-3 days of gains should still occur based on lack of Demark sells/exhaustion and reach 9900. Recent consolidation represents buying opportunity.
Longs/Shorts for a 3-5 day period:
Technical Longs: AAL, UAL, DAL, TECK, WDC, ANET, LOGM, VRTX
Technical Shorts: MNST, HRL, EWW, NFX, NOV, OXY, COG, LB, TSCO, GATX, KSS, M
Equities continue to churn sideways for SPX and DJIA, having moved literally nowhere since mid-December when both peaked out, and despite this consolidation being a possible negative given that US indices are not following the NASDAQ up to new highs, there remains precious little actual selling to warrant any kind of pullback. Under 19718 for DJIA, and 2228 for SPX would be time to pay attention, but for now the push higher in Airlines to help Transports, while Small-caps bottoming at recent support near the last months lows, along with the resilience of Financials are all considered positives. While the upcoming anniversary of last year's major lows near January 20th could indeed prove important, the near-term just doesn't yet justify that trends are turning South.
Key developments for Tuesday included a continuation lower in Crude oil, which affected Energy, while the uptick in Airlines to make a minor consolidation breakout added further to the stabilization and recovery in Transports after peaking in mid-December. Consumer Staples broke down, which normally wouldn't be expected to happen prior to any setback in stocks, while IWM bounced off hard support off 134.50 and showed some decent outperformance Tuesday. To expect any sort of meaningful setback, we'll need to see actual weakness, not just a stalling out.
One of the sectors in particular that's stalled out but remains bullish is Financials. This rose steadily when bonds were selling off (yields rising) yet suffered no material drawdown of late as yields fell. XLF has been grinding sideways and then showed very good outperformance Tuesday from COF, BAC, and many of the Regionals, as KRE rose nearly 1% on the day. XLF did temper gains by day's end, yet showed no real technical damage that might spell a headwind for stocks. Movement down under 23.10 is a necessity before thinking any real pullback in this sector is getting underway.
Charts and analysis below.
NDX 100, shown here by QQQ, has grown stretched, yet shows no major signs of peaking out, and if anything, despite being OUTSIDE the upper Bollinger Band on daily charts, still looks to have another couple days of upside potentially before any peak-out. For now, we'll need to see prices close down at their lows or negative, and undercut prior days' lows before having faith in a correction. However, upside does seem limited given the extent of this move of late while SPX and DJIA have not followed suit.
Airlines look to be turning back higher after Tuesday's advance to exceed the minor downtrend that's been in place for XAL since mid-December. The entire industrials sector stalled out when Rails and Airlines began to consolidate, and this is one important step towards thinking this group should push back higher and lead the Industrials in the days ahead. Stocks to favor include AAL, UAL, DAL, and ALK.
Financials are an important sector to highlight, given that this group rose steadily as yields spiked, yet failed to show any weakness as yields pulled back in the last couple weeks. This kind of price action rarely indicates a top, if holding up resiliently as yields plunge nearly 30 bps since mid-December. Expect that additional upside should be likely as the Treasury yield rally stalls and turns back lower, with yields moving up to challenge former highs. Financials should continue to make upside. The slowdown in momentum given the sideways action might eventually be problematic if prices don't emerge from this base as aggressively as needed, but for now, a move above 23.73 should lead to 24.27 initially and then higher up to near $25.
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