December 20, 2016
S&P MARCH FUTURES (SPh7)
2242-3, 2232-4, 2222-3 Support
2272-5, 2279, 2286-8 Resistance
S&P Futures: (2-3 Days) Bullish- Consolidation still hasn't resulted in any pullback and seasonal bullishness should help carry equities higher into end of year, as the NASDAQ is starting to act much better and should help to lead the broader market. Near-term, 2264 should have importance and over can help prices get to 2278-9. On the downside, 2242 is support, and under would bring about a 2-3 day pullback.
SX5E- EuroSTOXX 50- Bullish- Prices still look to move a bit higher after the 50% retracement of the 4/2015-2/2016 decline didn't produce any real resistance other than a minor stall out. Until/unless 3209 is breached, it looks likely that prices can still move higher.
HSCEI- Bearish- Ongoing weakness doesn't yet seem complete, with a move down to 9150-9250 being likely in the days ahead which would represent more formidable support. Movement back up over 9624 is necessary to argue a bullish stance.
Longs/Shorts for a 3-5 day period:
Technical Longs: NTAP, CTXS, ADI, UUP, EUO, QQQ, GILD, AMGN, AAPL
Technical Shorts: WYNN, AET, HUM, XRX, CRM, YHOO, AWI, VFC, KODK, DDD, FOSL, TRIP, TUP
It's looking increasingly likely that prices will resolve this consolidation by pushing higher into end of year before any real setback occurs. Despite the bullish sentiment readings, waning breadth, counter-trend signs of Exhaustion per Demark, we just haven't seen much, if any signs of real weakness. Prices remain largely where they were six days ago, and the pickup in Technology could serve to bolster the indices during this seasonally bullish time. The key in the near-term will be the breakout above recent highs for SPX, and NDX looks to have begun to turn up yesterday. If Technology can begin a strong bounce into year-end, the market likely should be given a healthy tailwind, in a similar fashion that Financials helped the indices during the latter half of November. For now, despite some momentum waning, it's just too tough betting against indices when prices remain within striking distance of highs, with little or no counter-trend signals on the NDX, nor SPX on weekly charts (both which require higher prices into end of year)
Looking back, Monday brought about a mild decline in Dollar/Yen, something which should be watched carefully given the positive correlation with SPX over the years. Bond prices showed some evidence of stabilizing and turning higher, at least in Europe, while both Crude and Gold managed small bounces.
The Technology move should be an area of real focus since this sector has lagged until the recent strength last week on the NDX breakout, and given that Tech accounts for 20% of the SPX, this should be something that has the potential to carry the entire market up into year-end. For now the key will be for NDX to climb back over 4960 on a close, and for NASDAQ Composite to exceed 5487. Both indices show daily signs of upside exhaustion, though neither indicator is flashing red on a weekly basis. This should be a green light for thinking we could move higher unless the lows of this recent consolidation are broken, which for now, looks premature.
Sector-wise, Casino stocks showed some evidence of turning down again, following their recent deterioration, and Healthcare showed some evidence of slowing after key resistance held Biotech from breaking out while Pharma (DRG) also ran into a serious level that could be of importance. For now, Healthcare has made good progress in recent days, but might require some backing and filling of its own before moving too much higher, and/or will need to see progress out of Biotech and Pharma above key areas of trendline resistance.
NDX's +0.50% gains on Monday outperformed SPX and should be well positioned to push higher in the days ahead, which should allow for equity markets to begin a final push up into end of year. QQQ, XLK and MSH have all shown recent progress and Technology's outperformance on Monday should help to jumpstart this sector and result in positive gains for the days ahead. While not expected, movement back under the lows of this consolidation would postpone the rally, but even in this case, declines should prove minimal and buying opportunities.
Biotech's ETF, the XBI, has now stalled for its second straight trading session near $62.50-63 which looks to be important on daily charts. Biotech never quite got the bounce that Pharma and Medical Device stocks enjoyed in the last few weeks and until this area can be exceeded, this group remains under pressure. Stocks like REGN, ALXN were key laggards on Monday. Pullbacks to near $60 look likely and a Gap-fill near $58.56 can't be ruled out before this stabilizes and turns higher (which is expected after this minor pullback runs its course)
Copper has shown increasing signs of turning down vs Gold in ratio form, and after the recent technical damage affecting Iron Ore and Steel Rebar over the last couple weeks, Copper has begun to turn down more sharply in recent days. Gold meanwhile has stabilized , and while bearish, it looks likely that Copper underperforms in the short run and moves down at a faster rate. For now, Copper should be avoided for the next 1-2 weeks while this correction runs its course.
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