December 23, 2016
S&P MARCH FUTURES (SPh7)
2251-2, 2242-3, 2232-4, 2222-3 Support
2264-5, 2271-2, 2279, 2286-8 Resistance
S&P Futures: (2-3 Days) Bullish- Weakness still hasn't proven outsized in nature to break below key support at 2242. With markets only having five more trading days left in the month and year, trends still argue for upside into 2272 area, with over leading to 2285-95. On the downside, 2242 is support.
SX5E- EuroSTOXX 50- Bullish- Movement up to test 3307-3316 looks likely into year-end. Until/unless 3209 is breached, it looks likely that prices can still move higher and test this important peak from nearly exactly one year ago.
HSCEI- Bearish- Break of Nov lows along with intermediate-term trendline is not constructive for HSCEI, which was thought to likely have a chance at stabilizing here and trying to bounce. Additional weakness looks possible to 9000.
Longs/Shorts for a 3-5 day period:
Technical Longs: BOIL, KRE, TBT, QQQ, OIH, AKAM, NTAP, CTXS, ADI
Technical Shorts: EEM, HALO, FPRX, TDC, GPN, AET, HUM, XRX, CRM, YHOO, AWI, FOSL
Thursday's move to new multi-day lows failed to cause any real technical damage as indices reversed losses to close nearly unchanged by the close. While Small-caps lagged along with Emerging markets, technical damage in US indices was insufficient to argue for a larger breakdown of any sort. With five more full trading days left in the month, it still looks likely that indices can push back higher to move to new high territory into year end before any larger stallout occurs.
Sector-wise, Financials and Semiconductor stocks continue to show good signs of strength, along with Energy, while Healthcare and Retail stocks were outsized laggards, both breaking down to multi-day lows which might cause further near-term weakness. Tech still looks to be an area to favor in the days ahead, as the SOX has another 3-4 days of upside before this stalls out, likely into end of year.
The US Dollar index and Treasury yields, similar to Equities, showed very little net movement on the day, and remain largely range-bound over the last 6-9 trading days. Given the consolidation within the ongoing uptrends, movement back to new highs looks likely before any pullback, so it still looks right to be long USDJPY, SPX, QQQ, while short Treasuries, expecting a possible rise to 2.70-5%.
S&P futures hourly charts detail the ongoing consolidation that has gripped US Equities since mid-month, with nearly nine days of no net change in price following almost a 10% rise from early November. This consolidation has helped to alleviate overbought conditions, yet has still not shown sufficient deterioration to think a pullback is imminent. Given that markets have five full trading days left in the year, bullish seasonality tendencies would suggest a move back higher is likely than any meaningful pullback. Thursday's attempted weakness which threatened to take indices down to weekly lows turned out to be nearly a non-event by the close, as prices regained nearly all of the early losses. Bottom line, the trading range from early December remains intact until/unless 2242 is broken. For Friday's trading ahead of the long holiday weekend, movement back up to test and breakout above 2272 looks more likely than a break of 2242.
Following up on yesterday's thoughts, Biotech's pullback extended below key support in Thursday's trading, violating $60 and making further near-term weakness likely. XBI, as shown in the daily chart above, cracked below prior lows from November, making a decline down to $57.50-$58 possible in the final five trading days of the year. Thursday's weakness in stocks like EXEL, LXRX, ATRA, KITE, FPRX, HALO, and BPMC ended up stripping more than 5% off in trading, with most looking to extend near-term declines into next week. Overall, while this group should soon hit support that would justify buying dips, for now it remains quite premature, and continues to be the weakest part of Healthcare. Extreme selectivity is required when buying in the next week..
Retail was another one of Thursday's big underperformers, down nearly -3.50% Thursday as per XRT. Daily charts show the breakdown of prior highs that had been exceeded in November, as one of the years' most bullish months for Retailing gave way to weakness as December got underway. This trend isn't necessarily new, and election results couldn't be attributed to the success of many of these stocks, as the sector yet again seems to be following the seasonal playbook. Stocks like ZUMZ, DKS, BIG, DDS were all down more than 7%., coinciding with XRT cracking below a key area near 46.50 that had held since the Spring. The breakout of this level two weeks ago lasted only one week before immediately pulling back below. Given Thursday's decline back below $45, additional near-term weakness looks likely for XRT, and this sector should be avoided in the final five trading days of the year.
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