February 10, 2017
S&P MARCH FUTURES (SPh7)
2292-3, 2284-6, 2273-5 Support
2310-2, 2319, 2325-7 Resistance
S&P Futures: (2-3 Days) Mildly Bullish, looking to sell rallies at 2315 stretching up to 2325 and flatten out, awaiting signs of a reversal, which should be in place by early next week- S&P is now up to within 10 points of targets, and risk/reward is not ideal for new longs- While this could take another 2-3 days before prices turn down, one should consider taking profits from a trading perspective on gains Friday and into early next week.
SX5E- EuroSTOXX 50- Mildly Bullish- Rally likely to stall in the short run just over 3300-3330, so use rallies to lighten up here over the next 2-3 days.
HSCEI- Bullish- Rallies closing in on targets, but still no evidence of exhaustion & right to be bullish with targets directly overhead near 10209, which if hit in the next 2-3 days, would be an area to lighten up in the short run from a trading perspective- Overall though, this breakout is constructive-
Longs/Shorts for a 3-5 day period:
Technical Longs: TBT, XLF, IYT, FXI, YHOO, GOOGL, NSC, MAR, LMT, AMZN, GDX, DOW, LYB
Technical Shorts: TLT, DV, KR, VZ, SPLS, WMT, TAP
Thursday brought about fairly pronounced reversals in Treasury yields along with an abrupt About-face in Gold, while coinciding with a sharp breakout in S&P back above 2300, which was what technically looked to be the final push higher of this rally off the late December lows. S&P and DJIA moved back to new all-time highs, while the NASDAQ continued ever higher. Breadth came in at roughly 2/1 positive, disappointing on such a good technical breakout, while Financials were the sole sector to turn in better than 1% gains while both Utilities and Materials fell. However, Energy Industrials and Discretionary all returned better than 0.50%
KEY TO NOTE: Stocks at current levels aren't likely to continue up throughout the balance of February. Prices have now reached the upper edge of 2% Std Dev Bollinger Bands while signs of upside exhaustion per Demark indicators are now in place. Additionally, sentiment has begun to swing back bullish, as markets have ignored POTUS Rhetoric and concentrated on the positives of possible tax cuts, and optimism seems to be on the rise globally. While the intermediate-term patterns remain in good shape, the near-term upside seems limited given some of these warnings, which coupled with overbought conditions and lackluster Breadth thrust in the last couple weeks, paints a picture of a market limping through the finish line. While a move up to 2327 can't be ruled out, and we haven't seen any real evidence of trend reversals, aggressive traders should look to sell into this rally in the next 2-3 days into next week, thinking that trend reversals are near, and would be ideal at 2315-25 to sell.
Sector-wise, Biotech along with healthcare in general showed evidence of breaking out yesterday that could lead to higher prices, while Retailing also looked to have bottomed out In the short run after a steep decline. For now, one sector that has NOT yet broken out again is Financials which should be watched carefully for evidence of this emerging and moving to new highs, along with the Small-caps, which have underperformed since December. The chart of IWM looks not too dissimilar from Financials, both of which have trended sideways in the last couple months. Overall, its thought to be doubtful that the market can experience any real peak without Financials and Russell 2000 joining the rally to some extent first. The patterns aren't conducive to tops, so Financials in particular can be overweighted as yields turn back higher, which looks to have begun Thursday.
Additional thoughts and charts found below
Thursday's rally helped the S&P breakout, though also reach the upper limits of its rally off the late December 2016 lows. While certainly a bullish technical move, momentum has gotten stretched, while prices have reached the upper border of the Bollinger Bands, suggesting that additional rallies from here into early next week should be sold. For now, the trend is bullish, but looks to have limited upside in the short run. Therefore, trends remain mildly bullish, but the risk/reward has gotten much worse for trading longs, and gains should be used to sell.
Biotech has finally shown evidence of breaking out after consolidating for the last few days near early January highs. Thursday's move back above triangle resistance should help to lift this group up to test and exceed last November's highs just above $68. In general, given that this triangle has been in place since last September, Biotechs should be a good risk/reward to strengthen in the days ahead, with stocks like BIIB, REGN and CELG appearing like good technical risk/rewards.
The Retailers have finally shown some signs of life after a dismal two months where this group got hit hard from early December. Prices rose to new multi-day highs today in a fashion that lifted Consumer Discretionary meaningfully on signs of S&P breaking out. While S&P is extended at current levels, this group is just starting to lift from oversold levels, so one has to be selective about what to short in this group at this point. Rallies look more likely than not in the days/weeks ahead, as this group starts to gradually recover.
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