February 1, 2017
S&P MARCH FUTURES (SPh7)
2262-3, 2250-2, 2246-8 Support
2281-3, 2289-90, 2298-2300 Resistance
S&P Futures: (2-3 Days) Bullish- Prices undercut 2280 and 2273-6, but managed to rally back to hold 2276, putting the correction for now still in doubt and making a long bias still right- Above 2282 should add conviction that S&P can move higher, and lead back to 2300 and above.
SX5E- EuroSTOXX 50- Bullish- Monday's decline to new multi-week lows was definitely more negative than positive, yet prices lie on the outside of Daily Bollinger bands, and better to use rallies to sell vs thinking we extend from here. Favor a snapback to 3300-10.
HSCEI- Neutral- Prices have risen to near resistance, yet show no evidence of counter-trend sells, and might meander sideways a bit more until we can see evidence of breakouts or breakdowns, which for now, seem elusive.
Longs/Shorts for a 3-5 day period:
Technical Longs: XBI, DRG, DXJ, BAC, BCS, ENDP, ABT, TECK, KMT, URI, MTB, UPS, TBT
Technical Shorts: WMT, TAP, MNST, HRL, XRT, PRGO, KSS, BBBY
Overall, prices fell down to key make-or-break support and held up miraculously well yet again. Tuesday's breadth was far better than that seen on Monday, even when the DJIA was down 180 with hardly any more Declining issues than Advancing. Momentum dipped on hourly charts, but didn't nearly reach prior lows, creating a level of positive divergence as price hit new lows while momentum was higher. Bottom line, the larger area of support formed by SPX, NDX over the last few months ended up holding again by the close as prices rallied well off early lows. Until we see evidence of this breaking, it remains difficult to assume too much of a bearish stance.
Healthcare remains in focus given Tuesday's rally to multi-day highs in DRG, BTK, and Medical Device ETFs like IHI, and the recent outperformance looks likely to continue in the days ahead. Trump's mention of Drug costs was thought initially to be a source of turmoil for the Healthcare sector, though recent efforts to help reduce regulation seem to be more positive than negative. This group's improvement from the worst performing sector last year to a market leader this year IS in fact due to some mean reversion type bounce, but looks to be ongoing as this group continues to show improvement. In performance figures through 1/31, Healthcare was tied with Utilities (looking at SPX GICS Level 1 groups) for best performance in the rolling five day period, while being the 4th best performing sector out of 11 for January. Overall, additional outperformance looks likely in the weeks and months ahead, and particularly in Biotechnology given the continued resilience in US Equities, as this sub-sector remains in much better shape than most other parts of Healthcare, despite last years decline.
The Decline in the US Dollar extended to the lowest level of the year Tuesday, undercutting mid-Jan lows and hitting the lowest levels since early December. It looks to be temporary given the bullish weekly and monthly structure, so dips should be used to buy, thinking that this pullback is nearly complete. Monday's gains attempted exceeding resistance near 101 and failed, so now important for the Dollar to hold 99-99.45. Overall a bottoming process should be in force for the US Dollar and movement back to highs to complete the 16.5 year cycle which could carry the DXY up to 110 into late Spring before a larger peak.
Charts and analysis below.
S&P's daily chart above highlights the picture heading into mid-day, when S&P fell down to near 2260 in Futures before rallying into the close. This level had some importance given the trendline which had been intact for some time and going forward, one should utilize Tuesday's lows of 2262 as being a key level to stay above. Any pullback at this point back under would likely prove to cause downward acceleration. On the upside, climbing back above 2284 will be key.
Biotechnology has been steadily improving in recent months, with charts of XBI showing a pattern of higher lows in place since late last year as the sector has grinded sideways in a triangle pattern that should eventually lead higher. Tuesday's close at multi-day highs is a step in the right direction for Bulls and should lead up to test and exceed early Jan highs at $65.87. If this is exceeded, which is likely as a form of pattern resolution, it should lead to the high 60s, which would make investing in this sector quite compelling at present.
Medical Devices ETF.. IHI, has just exceeded former highs from mid-January at $140.92, making a continued surge higher likely in the weeks ahead. This group has shown steady strength through tough times from September into November of last year, similar to most of the group. Yet its rebound has been far stronger and bodes well for continuation up to 146-150. Pullbacks could happen over the next 2-3 days just considering the degree of the lift yesterday, but would be buying opportunities, and doubtful that 139.40 is broken before a move up to 145 and above gets underway.
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