January 24, 2017
S&P MARCH FUTURES (SPh7)
2252-3, 2244-6, 2228-30 Support
2269-70, 2277, 2286-8, 2295-2300 Resistance
S&P Futures: (2-3 Days) Bullish- Pullback attempts held the area at 2248, which up to 2253, has contained three separate pullback attempts since 1/12. Unless 2248 is violated, the trend is neutral over the last month but increasingly setting up for a move higher near-term. 2295-2300 is a logical technical target to sell into. Under 2248 on a close leads to a test of 2228 which still seems premature.
SX5E- EuroSTOXX 50- Bullish- Insufficient weakness yesterday failed to take our prior days highs. Thus, 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- Mildly bullish- Increasingly looks to be trying to stall out, yet little real decline and sideways action isn't sufficient to suggest this goes lower with the decline in the US Dollar. Targets lie near 9910-9950.
Longs/Shorts for a 3-5 day period:
Technical Longs: EEM, DBC, GDX, GLD, SLV, EWZ, TBT, EMR, UNP, AAPL
Technical Shorts: XRT, HPE, FLR, STX, INTU, KSS, FOSL, BBBY, WMT, PRGO
Similar to all other pullback attempts in the past few weeks, early weakness held support above 1/12 lows and resulted in late day strength to end the day nearly unchanged. The key to trading wasn't the underlying indices of course, but the internal sector rotation which continues to yield clues as to what might be in store. With regards to US indices, prices have managed to withstand some underperformance in the Financials sector and Healthcare while allowing for strength in Consumer Staples, Real Estate and Telecom in the last week. However, Technology still owns the right to turning in the best performance Year-to-Date, and should be highlighted given its ongoing relative strength, along with Materials and Discretionary, all up more than 3% through 1/23.
The key development for the last few trading days concerns the degree to which Emerging markets and Metals/Mining have begun to advance sharply, given the decline in the US Dollar. This had been touched on a bit last week, but Monday's surge in EEM back over last December highs looks important structurally, and outweighs the presence of the so-called "Death Cross" where the 50-day ma has just crossed below the 200-day ma)
Gold and silver stocks along with other base metals and Natural resources names remain a source of strength, and while the Materials sector doesn't add much weight to the SPX, its recent outperformance is notable and still looks to have upside while the US Dollar completes its counter-trend correction. Many are wondering whether Trump will be bullish or Bearish for the US Dollar as more and more trade agreements are pulled and/or renegotiated. Near-term, technicals argue for a bit more weakness in the next 1-2 weeks, followed by a surge back to new high territory into the Spring before a larger potential top in the making. Overall, the near-term outperformance in Emerging market issues, for now, looks to continue until the Dollar can show more signs of stabilization, and XLB, XME, GDX, GLD, SLV should all be favored for more outperformance in the next couple weeks.
Charts and analysis below.
The Materials sector has been steadily showing increasing evidence of basing in the last six months after its initial rise off the lows in early 2016. This long-term downtrend now looks to be giving way, which should result in further strength out of the Materials stocks in the weeks ahead. (Ratio of XLB vs SPX) For now, this sector is outperforming all other groups outside of Technology and Consumer Discretionary and is higher by more than 3% in the month of January with six trading days left. Showing outperformance this month often can be a precursor to additional outperformance for the year as a whole. For now, this weekly chart shows the breakout of this downtrendfrom late 2010 which is meaningful from a relative standpoint, and should give way to additional outperformance.
Emerging markets continue to benefit from the falling US Dollar, and despite reports surfacing of a potential "Death Cross" at hand (Technical term for when the 50-day ma crosses below the 200-day) the structural progress in EEM outweighs the near-term concerns. Additional upside looks likely up to near $38-$38.50 in the short run, as most stocks which correlate well with Metals have shown very good strength of late and look to continue to do so into early February. For now, Emerging markets have been showing good counter-trend strength in outperforming developed markets given USD weakness, and this looks to persist a bit further.
Gold's rise still looks to carry a bit higher, as Monday's strength brought prices up to challenge the former highs from early January. Climbing back over 1218 looks likely and should help the metal escalate further in the short run up to near 1245-1250, which would align with the 50% ratio of its former decline, as well as former lows from last October. This would be a logical area to expect some slowdown in terms of resistance and would be an attractive risk/reward area to consider selling Gold and betting the other way as the US Dollar begins to stabilize and turn back higher.
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