January 25, 2017
S&P MARCH FUTURES (SPh7)
2271-2, 2262-3, 2250-1, 2228-30 Support
2283-5, 2298-2300 Resistance
S&P Futures: (2-3 Days) Bullish- Breakout to new all-time highs in SPX and NASDAQ should help prices accelerate up to near 2300- This constitutes a breakout of the entire range since mid-December, and is a short-term positive. Buy pullbacks at 2271-2, and 2262-4 maximum for a move up to 2292, then 2298-2300.
SX5E- EuroSTOXX 50- Bullish- SX5E likely to follow suit on what happened in US with prices turning back to multi-day highs and beginning a push back higher which could reach 3350-60. Failure to join suit with SPX would be telling, but for now, seems likely given the setup in European Banks
HSCEI- Mildly bullish- Still looks like this should move higher to 9910-50, but increasing signs of stalling out which should make a rally there used for profit-taking.
Longs/Shorts for a 3-5 day period:
Technical Longs: IYT, EUFN, KMT, R, FDX, JEC, URI, MTB, FB, MAS, UPS, CMG, MLM, VMC, TBT, EMR
Technical Shorts: XRT, PRGO, HPE, KSS, BBBY, WMT, PRGO
Tuesday's breakout looked meaningful, as prices rose to new intra-day and closing highs on daily charts for the SPX along with NDX, and NASDAQ Composite while breadth finished at near 3/1 positive. This helps to clear the entire base which had been intact since mid-December, so should result in the one-month trend going from neutral to bullish as prices start to emerge back to new high territory. Near-term resistance lies near 2300 and could contain gains into early February, but unless reversed, and prices move back into this base, and undercut 2257 for SPX cash, or 2251 in S&P futures, this is seen as a positive move and can allow for additional upside into February. Next month is typically seen as a seasonally bearish month in post-Election years,, and given the degree of this run-up we might see a paus and/or reversal. For now, its best to obey near-term price action and stick with this move, while looking to buy any minor dips if given the chance.
Specifically, Materials, and Financials both turned up fairly sharply in trading on Tuesday with XLB moving back to new all-time highs. Five groups were higher by more than 1%, and the fact that Financials joined Technology and Industrials in making this move is seen as a definite positive. Additionally, Small-caps joined the fray with IWM moving to new multi-day highs, while Transports also leapt to new weekly highs with IYT getting back to the highest daily closing level since 12/20. Bottom line, the sideways grind that we'd seen for over a month now looks to be giving way to a more broad-based move higher, and adds conviction to the near-term bullish case.
Treasury yields meanwhile leapt back up and retraced most of the prior days' pullback, as US Treasury yields along with German Bunds and UK Gilt yields have begun to show more serious signs of moving higher. This should be a positive development for Financials, and while US Financials gained ground Tuesday, we also saw European Banks arguably break out of a triangle pattern which had been intact since mid-December. This bodes well for Financials to outperform in the short run, while yield sensitive sectors like Utilities, Telecomm, and REITS likely face headwinds.
Charts and analysis below.
Tuesday's gains finally brought some excitement back to the market, for those that prefer a bit of volatility, as opposed to EKG like charts. SPX managed to exceed the highs of the range for the first time since highs were made for many US and European, Asian indices between December 9-13th. Small-caps along with Financials turned up sharply to match the recent gains in Technology and industrials, and suggests that additional upside is likely into early February before a minor peak in stocks. This is definitely a near-term positive development for SPX with number of 20-day highs jumping to new monthly highs in both SPX and NDX. Additional gains look likely up to 2300, which should serve as resistance into end of month, and lies just 20 S&P points away. For now, yesterday's gains look difficult to fight, and minor pullbacks should serve as buying opportunities.
Materials just broke out to new all-time highs as of Tuesday's close, something which was touched on in Tuesday's report given the uptick in relative performance by XLB vs SPX which began last week. While near-term stretched on this move, this is a bullish development and Materials now leads all other sectors on a YTD basis with returns of 5.66% based on S&P GICS Level 1 sectors, in data through 1/24/17. With five trading days left in 2017, this bodes well for this group to strengthen further during the year, though on any meaningful advance in the US Dollar index, this might consolidate a bit first given the extent of the move. For now, the Dollar continues to trend lower near-term and most Metals, mining, Natural resources stocks are bullish, with many making positive technical setups. Near-term upside likely is limited to $54, but pullbacks should be bought with technical targets between $55-$57 on XLB.
European Financials are likely to follow the S&P's move back to new highs, and as seen on this daily chart since December, the EUFN, or Ishares MSCI European Financials ETF, has formed an attractive Triangle pattern that looks to have been arguably broken out by Prices push above 19.53 on Tuesday's close. Additional upside looks likely as this begins to accelerate, and could reach $20.50 initially and then $21-$21.50 before settling. Stocks like DB have already broken out, while others like BCS and CS look to be on the verge of following suit. ( I own shares of BCS) For the days ahead, long positions in EUFN look prudent, thinking this accelerates higher out of this technical triangle pattern, and being long European Bank shares over the next 1-2 weeks appears like an attractive risk/reward.
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