February 21, 2018
S&P MAR FUTURES (SPh8)
2688-90, 2675-8, 2639-40, 2627-8 Support
2744-6, 2754-6, 2765-8 Resistance
LINK TO TECHNICAL WEBINAR from Thursday-2/8/18 -https://stme.in/Uh50B92G8-
SPX - (2-3 Days)- Mildly bearish until 2754 is exceeded. Pullback to 2688-90 possible and under that level would reignite the downward acceleration. For now, Tech strength could hold market up over the next few days. Despite SPX being down over 40 points from last Friday's highs, this has proven to be a fairly mild consolidation, so its still likely that prices can push a bit higher once this consolidation has run its course.
SX5E- EuroSTOXX 50- No change from last week- Mildly bullish to 3470, but a much weaker move off the lows for Europe than US, and doubtful SX5E can get back above 50% retracement of this decline without retesting. Downside likely limited to 3250 in the event that 3300 is broken on retest attempts
HSCEI- Mildly bearish, but likely to make a higher low and turn back up. US Dollar is bouncing at present, so EM markets are all underperforming- 12k-12050 should hold weakness before this turns back higher
Trading Longs: MU, INTC, ON, CY, PYPL, VRTX, ESRX, ZTS, GILD, NTLA, MTOR, NEM, GDX, ALGN, MOMO
Trading Shorts: MO, JCI, USG, FINL, GRPN, ODP, RCII, BKS, MNK, DUK, EAT, EXP
Own/buy Technology for the next 2-3 days while SOX reaches former highs before selling. This sector looks to offer some temporary refuge, but should be sold into next week
Hold off on buying Gold, Silver until Dollar rally runs its course, which looks to be Thursday/Friday of this week. However, this dip in precious metals should be an excellent buying opportunity for a move back to new monthly highs in March. Gold will require a move back up over 1365 to officially breakout, but is looking increasingly more attractive as a risk/reward.
Sell Treasuries, Bunds, Gilts as the recent rally in rates does not look complete and a push back to new monthly highs for yields in bonds globally looks to occur. TNX looks to test 2.95-3.00% before any peak in yields.
Steel and Metals/Mining stocks should be considered for longs as many have dropped 10% and now are beginning to snapback
This remains a much different market than what we experienced during October-December of last year. While Technology has served to buoy prices, the rest of the market certainly is having a difficult time following suit after regaining about 61% of the prior decline (SPX) Breadth came in around 2/1 negative yesterday with sectors like Consumer Staples, Utilities, Telecom and Real Estate all down more than 1%, with more than 2% declines in Staples, thanks to WMT. The only sector to show positive gains was Technology and even this sector barely eked out gains after a sharp early am rally. Transports remain a headwind to Industrials, as this sector and Healthcare both lost more than 1% in trading. Overall, it looks likely that SOX can still push higher this week, and that alone might help markets to hold up. However, we'll need to see some real participation from other sectors to help markets make some further headway, as its becoming increasingly a very splintered market. As long as SPX remains over 2688, this remains just consolidation and still has a chance to move higher. Below there would result in downside acceleration and a pickup in volatility which very well could match or exceed what was seen two weeks ago. On the upside, regaining 2754 is thought to be particularly important.
The meaningful move yesterday came out of the Dollar index, which staged a meaningful bounce while Treasury yields consolidated near the highs. Additional upside looks likely for yields to near 1% potentially for German Bunds while TNX could reach 2.95-3.05%, but this area represents resistance to consider buying Treasuries/bonds again. With regards to the US Dollar, this bounce looks to be one to sell into come end of week, but for now is putting pressure on emerging markets, and near-term selling pressure on the metals. Given our thoughts in the most recent Weekly Technical perspective, any decline in the metals creates a very good opportunity to buy dips given the structural bullishness in most of this area.
Additional charts and thoughts below.
SOX strength looks likely to carry Technology and hold up most of the market in the days ahead. While many of the other groups have been weak, Semis look to have another 2-3 days of strength which should be used to sell into by end of week. As this daily chart shows, the trend for SOX has stalled out meaningfully since last year, making for a more selective stance for this sector. Momentum has taken a nosedive, and registering lower and lower peaks on rally attempts. Meanwhile the pattern resembles that of a potential Head and Shoulders pattern in the making, which would be confirmed on a break below 1200. For now, it looks likely that former highs can be tested in SOX between now and end of week and this should be an area to overweight near-term for a bit more strength. However, the weekly chart in the next 1-2 weeks will register the same exhaustion that was present at prior highs and likely signals an upcoming "top" and/or stalling out for this group in March. At present, this is premature, and SOX likely leads in the days ahead.
The US Dollar rally in the last two days has resulted in both EM weakness as well as Metals underperformance. However, this recent bounce remains within the confines of an existing downward trend, and unlikely to break out right away given the downtrend. This should set up for an opportunity to sell into strength and buy EURUSD and GBPUSD along with most metals on weakness.
The sharp pullback in Gold Tuesday should create a buying opportunity by end of week, technically speaking. This consolidation remains quite constructive, and Gold has support from 1315-30 that should help this minor pullback to stabilize and turn back higher, coinciding with the US Dollar turning down. The pattern in Gold currently remains very constructive, with the rally from late last year reflecting the higher lows, while three separate highs have occurred near this 1365 area, which is likely to be tested and exceeded in the near future. This looks like a good opportunity technically to buy any further dips with the thought of Gold turning back higher and breaking out. Only if 1300 is breached would the rally be postponed.
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