March 9, 2017
S&P MARCH FUTURES (SPh7)
2356-7, 2349-51, 2345 Support
2373-5, 2381-2, 2390-2, 2400-2 Resistance
S&P Futures: (2-3 Days)- Bullish- S&P has sold off for four of the last five days, yet has NOT taken out last week's lows, nor is even beneath the lows from last Wednesday which precipitated the large rally. While the near-term trend has arguably turned down, the factors of bullish Tech and Financials strength still suggest that pullbacks should prove short-lived and the larger move in the near-term remains to the upside. Pullbacks at this point, if they were to breach Wednesday's 2356 lows, should reach 2349, the lows of the consolidation, before turning up.
SX5E- EuroSTOXX 50- Bullish- Little of the weakness seen in US is occurring in Europe, where prices have forged higher. Movement up to 3500 looks likely.
HSCEI- Neutral, turning to bearish under 10102- Thursday's early am pullback has resulted in prices undercutting Wednesday's lows, and unless recouped by Thursday's close, would suggest a move down to 9910 is imminent.
Longs/Shorts for a 3-5 day period: NO Change from Thursday
Technical Longs: HOLX, PCLN, EA, BAX, YCS, ATVI, AAPL, FAST, COL, HUM, CI
Technical Shorts: EEM, CHK, FCX, AES, AN, MNK, GILD, TSN, COST, SPLS, HTZ,
Tough market to say the least. 4 out of the last 5 days have been "DOWN" for SPX, yet prices haven't even breached last Wednesday's lows, which saw the GAP higher out of the consolidation range. NASDAQ, meanwhile, barely has registered any weakness whatsoever, and still sits 4 points away from last Friday's close, and has acted as of an upside breakout should be imminent. Options flow seems to be betting on big moves in some of the Tech stocks and just in the last couple days alone we've seen over 30k contracts being bet on INTC's rise, with strikes nearly 10% higher, and double that amount in AAPL. Yet for now, the market is churning, and the tape feels not all that steady.
Granted, a few serious negatives are now in place in the short run: Breadth has dropped off substantially as might have been expected in the last week. The advance/decline actually peaked back on 2/21. the number of new 52-week LOWS on NYSE still outnumbers those making new highs. And the percentage of stocks trading above their 10-day moving average has been cut in half in recent weeks, with percentages dropping from the low 80s% down to 35% as of Tuesday's close, 3/7/17. Yet, the trends are still very much in place for most US indices, and most of the bearish arguments still have failed to result in any meaningful trend deterioration.
Importantly we have seen a few key positives in the last few days that also need to be mentioned. The US Dollar has moved up sharply vs the Japanese Yen last week, (and Wednesday saw this hit multi-day highs again, as it carves out a base from mid-January. Any daily close over 114.75 should help this push higher in a manner that would lead to a test of former highs back in December. ) This is positive simply given the degree of positive correlation that we've seen historically between USD/JPY and the SPX, which is north of R=.45. Additionally, Treasury yields seem to have furthered their recent breakout, as TNX closed well above 2.52% and at one point was over 2.56%. This was a meaningful breakout in yields with 5's, 10's, and 30s all showing meaningful yield strength. Treasury yields and stocks have also trended well together since the election, despite going in the opposite direction over the last week. So the yield curve has steepened a bit, and Financials, though having NOT responded thus far, should benefit from this move in yields and begin to move back higher.
The Defensive stocks have fallen on hard times in the last few days, which typically occurs during "risk-on" moves, while the upswing in the US Dollar index has caused Emerging markets to underperform and EEM has turned down, lagging performance over the last few days. Additionally the metals complex remains weak, as we've mentioned before, and should weaken further as USDJPY starts to accelerate and Yields continue their ascent.
Overall, it doesn't look wise to abandon equities here with Tech and Financials acting strong, and such a minimal pullback effort within the existing uptrend which hasn't done any real trend damage. However, we'll keep watch for signs of more deterioration from the Financials (which would be a negative) and/or signs of NDX or SPX, INDU dropping down under key support levels.
Additional thoughts and charts found below
NASDAQ has barely registered any real selling in recent days, and something to consider when gauging whether the market as a whole is ready to begin a meaningful selloff. As of Wednesday's close, prices were just a few ticks away from levels registered last Friday. While the breadth numbers have slid lower as a result of this consolidation, prices have held up in admirable fashion. Demark sells are not in place on a daily basis, and NDX would need to show a pullback down under 5300 to have concern. At present, a rally back higher above 5400 looks more likely. The key point here concerns the degree of resiliency in NASDAQ relative to SPX. If the market were going to show real weakness, one would expect NASDAQ to turn down, and begin to lag substantially, which it has not. Stocks like AAPL, GOOGL, MSFT are all well positioned technicallyand all managed to rise to multi-day highs on Wednesday.
Emerging markets have proven to be a casualty of the US Dollar and yields turning up sharply and EEM fell to the lowest level on a closing basis since early February (37.89), which broke under late February lows. Additional weakness looks likely here in the short run with downside targets at $37.15, or a maximum move near-term at $36.54 as support before this can stabilize. However, Developed markets have all turned higher vs Emerging of late, and this weakness in Emerging markets looks to continue as the Dollar lifts.
The US Dollar index's gains have already made very good headway vs Pound Sterling of late but have just begun the process of rising vs the Japanese Yen. USDJPY has carved out a bullish base since January which makes for an attractive case for why equities could see a bit further upside into the FOMC meeting. Rallies back over 114.75 would set the Yen on course to test prior lows vs USD from last December (highs in USD/JPY) and the Dollar's gains should begin to accelerate upwards vs Yen given the uptick in momentum of late and improved structure.
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