February 16, 2017
S&P MARCH FUTURES (SPh7)
2332-3, 2316-8, 2290-2 Support
2348-50, 2355-7, 2360 Resistance
S&P Futures: (2-3 Days) Bearish- Yesterday's decline failed to gain too much traction, and prices stalled out near initial support on the uptrend from last week just below 2337. For Friday, gains should be used to sell and a negative stance remains prudent, with movement under 2336 and particularly 2331 leading to the start of a move down towards 2300.
SX5E- EuroSTOXX 50- Bearish- No change- Thursday's decline finished fractionally under Wednesday's lows, making additional weakness likely in the days ahead. Upside looks limited and pullbacks to near 3280 look likely initially. Gains should be capped near this 3330 peak, and over would allow for a brief move to 3365-75
HSCEI- Bearish- 9-13-9 pattern is present via Demark indicators and pullbacks look likely in the days ahead from an extended state. A minor correction down to 10250 appears likely, but the breakout move overall is viewed as bullish, so one should look to buy into any weakness into early March, with key areas at 10250 and then 10090-10100.
Longs/Shorts for a 3-5 day period:
Technical Longs: VXX, GDX, GLD, SRE, XLF, MAR, YHOO,AMZN
Technical Shorts: DAL, AAL, SIG, AN, BBBY, KSS, EEM, FXI, QQQ, KORS
Markets look to be finally showing some evidence of stalling out following the S&P's pullback to retrace most of the prior days gains. While prices rallied into the close, momentum has begun to stall, and would take just a move under 2336 to break this uptrend which would allow pullbacks down to challenge and break Wednesday's lows. Equities remain overbought, while Demark counter-trend signs of exhaustion are present. Additionally, seasonality starts to turn bearish tomorrow on February expiration, and the week following expiration in February typically is positive only around half the time. In other words, the bullish seasonality for February expiration should now give way to a pullback which is typical in February following Elections. For now, insufficient weakness was present on Thursday's close to suggest immediate acceleration, but extreme selectivity is needed for longs at this point given the degree to which momentum has become overbought and now stalling.
Outside of Equities both the US Dollar and Treasury yields showed signs of fading Thursday and over the last few months have correlated quite positively with the S&P, particularly TNX and USDJPY. Heading into Friday additional weakness looks likely in both, and this could serve as a near-term headwind for Financials while serving to lift interest sensitive sectors like Utilities and REITS even further in the short run.
Gold looks to be primed for a final push higher given the movement of rates and USD as mentioned above, and the precious metals complex in general looks attractive on a 3-5 day basis to continue its recent advance.
Long positions in GLD, SLV, IAU, GDX look attractive between now and the end of February.
Additional thoughts and charts found below
S&P pulled back right to key trendline support , but will need to get back under 2336.75, Thursday's lows, or even better, under Wednesday's lows at 2331 before having definite conviction that a pullback is underway. However, as mentioned previously, factors such as overbought conditions, Demark sells , sentiment and seasonality would all suggest a near-term change of trend should be imminent. Momentum will begin to wane if prices start to languish, which looked to have begun at least partially on Thursday. For now, a real trend reversal where rallies fail and then prices move down to new multi-day lows would be a definitive sign, which for now, remains premature.
One important technical development for Thursday centered on the US Dollar index, which fell down under trendline support from early February, suggesting a deeper retracement in the Dollar's decline vs Pound Sterling, Yen and Euro is likely in the days ahead. However, it's doubtful that DXY takes out the lows from early February given the extent of the momentum improvement in the last couple weeks. The 120 minute chart above shows momentum nearing oversold levels already on yesterday's break. A move down to 100 or 99.45 as a maximum level of support would provide a good entry for being long the Dollar again vs Euro, Yen and Sterling, which looks likely for the next few months as the Dollar moves back towards highs and EURO down to parity and below vs USD.
Gold's move back to multi-day highs reflects the combination of weakness in both the US Dollar and Treasury yields, and should help Gold continue its rise in the short run to briefly take out 1250 before resuming its decline. For now, given that the Dollar decline looks temporary, it's also likely that Gold's advance fails to take out the larger declining trend which has marked its downtrend from last July. In the short run however, gains look likely in Gold, Silver and in most mining stocks in the days ahead, which could strengthen on the Dollar's decline along with Commodities in general. One should utilize this move to consider lightening up in Gold by March. For now though, long positions in GLD, GDX, SLV, XME likely will work for the next 1-2 weeks.
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