February 15, 2017
S&P MARCH FUTURES (SPh7)
2316-8, 2307-8, 2290-2 Support
2332-3, 2338-40 Resistance
S&P Futures: (2-3 Days) Bearish- Prices have reached targets above 2330 as of Tuesday's close, and a pullback should get underway in the days ahead that takes prices down to 2293-5 and potentially 2281-3.
SX5E- EuroSTOXX 50- Bearish- Counter-trend sells are also apparent on daily charts of SX5E and should result in at least a minor pullback in prices in the week ahead, which could get down to near 3221 but probably not breach that level. For now, upside looks limited.
HSCEI- Bearish- Counter-trend sells also have cropped up in HSCEI daily charts and should result in prices backing down from elevated levels after the successful breakout earlier this week. Pullbacks to near 10k can't be ruled out but would be an excellent area to buy dips.
Longs/Shorts for a 3-5 day period:
Technical Longs: VXX, XLF, YHOO, GOOGL, NSC, MAR, AMZN
Technical Shorts: EEM, FXI, QQQ, KORS, VFC, DV, SIG, KR, VZ, WMT, TAP
Tuesday brought about yet another push upwards, though far less impressive in breadth and magnitude than seen in recent days, with breadth barely registering positive. While the Media talked about indices scaling further into new high territory (which was certainly true), prices failed to get up above targeted resistance on a closing basis, and registered an official "8 count' in this current Demark based Sell setup, which will now officially "perfect" this count as of Wednesdays close. (Note, EEM and VIX also are showing completed Demark counts as of Tuesday's trading, suggesting reversals should be imminent) In plain English, the counter-trend methodology that makes up at least part of the thinking of why equities will need to consolidate gains and selloff in the near-term looks to be now in place. Confirmation of the sell itself in the days ahead, in the form of prices now making a close UNDER The close from four bars ago would go a long way towards thinking a short-term pullback is finally upon us.
As for Tuesday's price action, yet again we saw Financials make up the bulk of gains as the breakout in XLF extended ever higher. This is a bullish sign on an intermediate-term basis (3-4 months), yet the group is overbought near-term, similar to the broader market. However, this move is important this week given that Financials made up the bulk of the gains post Election and then went sideways for nearly 2 months before breaking out again this past week. This constructive "flag" pattern should help to carry the group ever higher in the weeks ahead, despite the fact that momentum HAS gotten overbought. Counter-trend sell signals for Financials are premature, and the group still lies 22% off all-time highs. Additionally, it's important to point out that Financials makes up nearly 15% of the SPX, so breakouts in this group are likely to serve as a tailwind for stocks in the next few months. Therefore, while near-term selloffs are growing increasingly likely, they should prove to be short-lived given the resiliency of this sector.
Yields pushed ever higher yesterday and accelerated a bit following Yellen's hawkish tone and the steepening of the yield curve and this bond selloff is directly coinciding with Financials strengthening. While sentiment per CFTC "Specs" shows a distinct bearish bias that will eventually put a lid on how high yields can rise, (and yields as of Tuesday night's close look to be close as they hover just below 2.51%) a move over 2.51% is expected into late Spring which in turn should fuel the Financials group, as XLF rallies over 25. For now, near-term Yield resistance lies near 2.51% and should cap the 10yr yield rally, but pullbacks over the next 1-2 weeks should be an excellent time to consider buying dips into early March (Selling Treasuries and Buying Equities) for an extended push higher into late Spring.
Bottom line, to reiterate some thoughts from yesterday, it looks like a time to be very selective about what to buy and initiate as longs, and it's wise to be on the lookout for trend reversals this week, where prices push higher early on, yet fail and close down near the lows for the day or at a slight loss.
Additional thoughts and charts found below
Tuesday's gains lifted prices to overbought levels, but momentum showed some definite signs of tiring, diverging from price in making a lower high which is a key warning sign that this lift is coming to an end sooner than later. Trading short positions and/or hedges are recommended here, looking to sell further into strength if this happens on Wednesday, with ideal areas at 2343, utilizing any early strength to sell, and looking for signs of price backing off early highs to close down on the day at a loss, and near multi-day lows which would add some conviction that short-term highs are in place.
The Financials group extended further on Tuesday, with the makings of a real weekly breakout this week, with prices trading as high as 2008, albeit a good 22% off all-time highs. This "flag" pattern with the rapid acceleration post Election leading to consolidation and then a further lift up is a positive sign technically, and should lead to an equally strong rally in the group in the months ahead into late Spring. For now, yields seem to be nearing initial resistance, and XLF itself is depicting Daily TD Sequential sells signals (though not confirmed) while TD Combo shows a 9, which would require another 3-4 days. For now, it's thought that prices should still press higher early on Wednesday and even on some minor consolidation, would not nullify this week's breakout. Pullbacks should provide better suited buying opportunities for another couple months of gains in this sector.
Treasury yields seem to have neared their own level of initial resistance when eyeing 10-Year Treasury yields and the push higher in recent days. This area at 2.51% marks a mild downtrend from mid-December which should have the effect of causing a minor stalling out in yields at a time when equities are likely to peak out and back and fill. So, as might be expected given that both yields and stocks have moved in unison of late, we could see some stalling out and pullback in both in the next week before any further gain. However, movement above 2.51% is likely to lead to an extended move which should test and briefly exceed last December highs, as the push towards a March rate hike continues.
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