May 16, 2018
S&P JUNE FUTURES (SPm8)
2695-7, 2682-3, 2666-7, 2649-52 Support
2725-6, 2741-4 Resistance
LINK TO TECHNICAL WEBINAR from last Thursday 050818- https://stme.in/7plbipwe92
SPX - (1-2 Days)- Bearish- Yesterday's selloff happened within the key time of trend change, and should begin to lead indices lower in the next couple weeks. Rallies on Wednesday would be used to pair down longs and/or consider adding hedges and/or implied volatility for what could be an above-average period of volatility into late May.
SX5E- EuroSTOXX 50- More Neutral than bullish or bearish, but expect upside proves minimal and this joins US indices in weakening in the weeks ahead. Look to sell rallies at 3600-15 while under 3530 should lead down to 3477 initially. Unlikely to surpass 3659.
HSCEI- Bullish but overdone and pullbacks down to 12150-12300 would offer an attractive area to buy dips. Areas to sell lie at 12800-20-
Trading Longs: EOG, NOV, OXY, TJX, ERI, WYNN, SRS, DRV, MRO, ETFC, BAC, EUO
Trading Shorts: LL, VNQ, XLU, SMH, VNO, AIV, D, ATVI, UAL, EXC, SRE, ITW, BLL, MAS, ABC, WMT, CAH, KSS, PCAR, MMM
Short SPY at 272.98, looking to add to shorts at 273.50-274 with targets at 262-4
Looking to short QQQ today at 171.50-172.50 targeting 162
Short SMH 106.23, with target 100
Long OIH 27.33 with target 29.50
Long TBT 38.10 with target 41.25
Short XLU 50.19 with target 47.37
Short VNQ 77.42 with targets initially near 72
US Equity indices looked to reverse on cue during a time this week when reversals were thought to be likely. While breadth came in just 2/1 negative, volume did expand to the highest levels since last Wednesday, and many indices closed with price patterns seen as "island reversals" which are negative and should lead lower in the upcoming weeks. Given that prices closed up a fraction from earlier lows, any attempt to trade higher into Wednesday/Thursday likely represents a chance to add to shorts and/or consider taking profits on longs. Sector-wise, Energy remains one of the sole indices where longs are recommended, while Financials, industrials and technology all look to move lower. One should continue to avoid and/or tactically short the yield sensitive sectors like REITS and Utilities as the bond selloff looks to have reignited .
The most important technical development for yesterday centered on 10-Year Treasury yields breaking out above 3.05%, and while they've been above 3% recently and didn't cause much equity volatility, this time around looked more important given the breakout in TNX above a long-term monthly downtrend channel that's been ongoing since the mid-90's, or 24 years ago, when yields peaked out in 1994. The steeper downtrend from 1987 highs was broken a few months ago, but yesterday's breakout looked more important in getting decisively above 3.05% and mimicked what had occurred in 5-year yields just a few weeks prior. 30-year Yields look to be on deck for their own breakout and would take simply a move up above 3.23% before this joins suit and yields start to ratchet higher. While sentiment is quite negative on Treasuries and monthly exhaustion signs are present on TNX charts which have marked peaks in yield in the past, neither the daily, nor the weekly charts show any confluence in this regard, indicating that near-term bond rallies likely should prove to be selling opportunities for Treasuries with yield targets up near 3.20% potentially or even 3.25% before yields face exhaustion and turn back lower. This bond selloff certainly isn't a US phenomenon either, as weve seen similar movement in German bund yields and also UK Gilts. Our thinking about selling yield based sectors remains very much on the front burner, and REITS and Utilities, not to mention Telecom might very well underperform over the next couple weeks until yields reach some type of resistance.
Outside of equities and bonds, the US Dollar's sharp advance yesterday suggests there still lies a bit more upside here as well, despite how stretched. Pullbacks in EURUSD might very well hit 1.17-1.1720 before finding support, while GBPUSD could reach 1.34%. The combination of yields and Dollar rising should pose a problem for precious metals rallying, which typically underperform dramatically when USD and TNX are both rising sharply. While the Dollar looks to be close to potentially reversing, it's not there yet, and yesterday's TNX breakout looks to extend, potentially into early June. So in the near-term, stocks and bonds might both selloff in unison, making it difficult to find anywhere to "hide".
Additional charts and thoughts below.
Pullbacks in XLK yesterday mimicked the pattern seen on many indices with reversals to multi-day lows after their steep uptrend. This had an effect on intra-day momentum weakening and in many cases, breaking the uptrend of the last couple weeks. Any further rally attempt should be met with selling pressure as this will bring about worse breadth (Weve already seen negative breadth Monday on a positive day for indices) while Tuesday's action very well could just continue lower also. Bottom line, one should consider taking profits in Technology and consider Energy to be one of the sole sectors left which maintains some signs of relative strength. Tech, Industrials, Financials might all continue weakening in the upcoming 2-3 weeks given yesterday's reversal and the ongoing poor absolute and relative trends in these sectors.
Treasury yields broke out above late April highs yesterday, and as seen in monthly charts below, this had even bigger implications for the longer-term trend channel. No counter-trend evidence of exhaustion was present, so near-term yield pullbacks would represent a chance to sell Treasuries, expecting higher yields into late May/early June before any peak. Technically this looked to be quite the bullish move yesterday, so unless this is reversed completely, one should consider this a bearish move for Treasuries (bullish for yield that could provide some near-term acceleration higher in yields (and subsequently spook stocks given the quickness of this move)
Yesterday's bond selloff was truly important to the long-term structure in 10year yields, which broke out of long-term trend channels that had held yields intact since the mid-90s. TNX arguably broke out of a steeper channel from the '87 highs a few months ago, but this 24-year channel has held numerous rallies and declines, so the act of exceeding 3.05% from January 2014 put yields at the highest since July 2011, seven years ago. Near-term, it's difficult to think buying Treasuries gets much traction just yet and near-term pullbacks in yield should represent attractive opportunities to sell, with yield targets north of 3.15 and potentially up at 3.20-5%. TBT looked to have broken out on yesterday's move with the highest volume since mid-March. This looks to continue higher near-term and dips should be opportunities to assume long positions in TBT into late May/early June.