January 20, 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 failed into yesterday's close, which had a window to accelerate down, and didn't. Overall, until some type of weakness can hold into the close, this looks again like a false breakdown attempt. 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- No change- Mildly bullish for 2-3 days, while US Dollar completes its decline, but HSCEI, along with FXI, both look to have limited upside and should provide attractive areas to lighten up/sell post US Inauguration. Targets lie near 9910-9950.
Longs/Shorts for a 3-5 day period:
Technical Longs: TBT, EMR, UNP, AVGO, AAPL, NFLX, MSCC, WCG
Technical Shorts: STX, INTU, KSS, FOSL, AZO, BBBY, WMT, PRGO, MNST, LB, GATX
Inauguration day is here. Nervous apprehension seems everywhere, creating a cloud so thick you could cut it with a knife. Sentiment has contracted fairly rapidly in the last week, as per AAII readings (AAII now showing just a minor spread of +5 between Bulls and Bears - 37% Bulls, 32% Bears) and despite Trump's speech likely having been carefully written, it's truly a day that looks to be causing many to feel anxious.
With regards to markets of course, anxiety likely won't cause the degreeof breakdown that many think CAN happen. Thursday attempted to selloff, yet by the close in Futures, prices had jumped back and were nearly positive into the bell, with NASDAQ futures flat and down less than 5 points, or -.09%. S&P, which had fallen to break the minor consolidation to the downside, failed to accelerate, held and by close had also moved back up over 2260, the key area in question (which allowed it also to hold the trendline from late December) Similarly, DJIA, which had earlier sold off under late December lows, rallied back to hold above 19718, and the RUSSELL 2k, while having underperformed the entire day, didn't break below the channel support from the peak it made in mid-December. All in all, for a market that many believed was ripe for showing weakness, and HAD ITS CHANCE during the session when it began to violate support, never really gained much ground to the downside. Bottom line, more proof is needed before weighing in too negatively given the degree of resilience that's currently being shown.
The two key developments on Thursday had to do with industrials breaking out, and then Treasury yields also successfully exceeding their own trendline resistance. Both faltered a bit intra-day, but by end of day, both breakouts were intact and are believed to be valid. The Rail stocks contributed to the majority of this move in the Industrials today, given CSX's early 20% + surge, but it caused the Industrials to register counter-trend BUY signals using Demark indicators on daily charts when eyeing XLI v SPX, which should help to fuel the rest of the group in the short run. Stocks like EMR, UNP, NSC remain attractive to move higher within the group, and are specific technical buys just based on Thursday's price action alone.
Yields breaking out above 2.43 looks meaningful, given that this level held since mid-December, and given the degree of prior positive correlation with SPX, should have a positive effect on Financials, which were strangely lower Thursday. However, much of this likely had to do with BK and KEY earnings which seemed to be a drag on the entire sector. Overall, I suspect that the rise in yields should be a negative for Utilities, Telecom, REITS while being a positive influence on the Banks. If the Dollar turns higher and accelerates similar to Yields, then commodities recent breakout attempt would prove quite short-lived. For now, I suspect that the anxiety around the Inauguration and ongoing resilience should make breakdowns prove short-lived and false, and that stocks likely end up following yields higher, no matter how brief.
Charts and analysis below.
S&P's lack of closing down under 2260 keeps this trend intact, holding the lows of the last couple days along with the trend from late December. To have any inclination of some kind of selling post inauguration, we'll need to see more technical damage than this. The air of nervousness surrounding today's event coupled with the LACK of selling thus far would seem to be more bullish than bearish. The next few days will speak volumes as to what the trend has in store, as the range has grown increasingly tighter in recent days.
The breakout in Industrials WAS largely Rails based, yet failed to completely reverse by the close and still makes the case for this group to outperform in the near-term. CSX rose 20%+, yet others like UNP, NSC remain technically sound and achieved their own minor breakouts yesterday and should help these stocks follow suit. Additionally, relative charts of XLI v SPX with Demark indicators overlaid have produced TD Sequential BUYS on the sector, indicating that it might be smooth sailing at least in the short run. This also seems to be something that suggests markets might first need to go higher before pulling back.
Treasury yields achieved exactly the move that was thought to be a possibility and what to watch for in prior sessions and its move back above 2.43% should help yields continue higher in the short run. This surge in rates should be positive for Financials and negative for yield sensitive sectors. Over 2.55% would argue for a move above last December's peaks which could see rallies to 2.80-3%, but that would be an excellent level to buy Treasuries and should prove to be a ceiling for yields. For now, Thursday's move ahead of the Inauguration is telling and should be a positive for other risk assets given recent history.
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