May 17, 2018
S&P JUNE FUTURES (SPm8)
2695-7, 2682-3, 2666-7, 2649-52 Support
2725-6, 2741-4, 2747-9 Resistance
Dial-In Number (United States): (701) 801-1211, Access Code: 840-955-999
SPX - (1-2 Days)- Mildly bullish with a "Stop and Reverse" UNDER Tuesday's lows which turns the trend back to bearish- The rebound attempt after Tuesday's crack to multi-day lows lacked the breadth of a true recovery and Financials and Tech barely made any headway. A small rebound back to Monday's highs is possible but momentum still likely to fade on any further bounce and setting up for pullbacks into late May.
SX5E- EuroSTOXX 50- Mildly bullish for a move up to 3600 into end of week where prices likely reverse. Europe had led the rally higher, and should now be expected to fade and underperform in the weeks and months ahead. Upside minimal, but still tough to bet on immediate declines just yet.
HSCEI- More bullish than bearish after downtrend break and recovery attempt over the last 6 of 7 trading days. Areas to sell lie at 12800-20 while pullbacks down to 12150-12300 would offer an attractive area to buy dips.
Trading Longs: CMG, LVS, WYNN, MRO, EQT, EOG, NOV, OXY, TJX, ERI, SRS, DRV, ETFC, TROW, SCHW, AMTD
Trading Shorts: LL, VNQ, XLU, SMH, VNO, AIV, D, ATVI, EXC, SRE, ITW, BLL, MAS, ABC, WMT, CAH, 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
Bottom line, yesterday's rally didn't accomplish much to think the larger trend might be saved from going lower, but it was a brief reprieve, and it can't be ruled out that US indices hold up into end of week before turning down next. While Russell 2k broke out to new highs, the move happened on far lesser momentum while prices logged TD Sell Setups and Weekly signs of Demark exhaustion that might result in a fake breakout at a time everyone seems to be pointing out the move back to new all-time highs. Materials led the move yesterday, while breadth came in around 2/1 positive, with Financials and Technology just barely finishing in the Green. The two constants that were ongoing during Tuesday's selloff were still in place, that being US Dollar rising, along with Yields making headway higher. Yet, equities bounced and gave most a sense of comfort. A few things are important in this regard: The downturn to multi-day lows was far stronger than yesterday's comeback. Even on a mild move back above Monday's highs, this will create negative divergence and will be problematic. The issues with the low breadth, poor momentum rally haven't changed, nor has the fact that Industrials, Financials, Healthcare all lie in downtrends. So the volatility which is possible over the next few weeks doesn't look to be postponed. Indices will need to show some real upside headway to alleviate these issues. Of course there are a number of stocks pushing back to new all-time highs that are attractive to own, with tight stops, and so there remain opportunities to take advantage of, despite what's thought to be a slowly withering trend with poor risk/reward.
Some of these longs mentioned are within the Energy sector such as NOV, MRO, EQT, HP, as OIH gradually continues higher towards its retest of January highs. Other sectors like Financials have shown stocks like UMBF, ETFC, TROW, IBKR, SCHW, AMTD demonstrating very good technical strength and should be ones to concentrate on. However, given the rise in YIelds, sectors like REITS and Utilities have offered some attractive short opportunities and AIV, MAA, UDR, EQR, AVB, ESS, KIM, RPT, DDR, D, SCG, CNP, PCG, and SRE all look to move lower in the days and weeks ahead. Overall, there should be opportunities for those seeking longs and shorts for now. The next few days should bring more insight as to what kind of bounce we can see into end of week/or lack thereof, but it's still thought to be something to pare down longs into by end of week, thinking that 2730-45 should represent a maximum upside for this move before prices turn lower.
Additional charts and thoughts below.
Small cap Russell 2000 has just pushed up to new all-time highs, something which is a bullish development from a price perspective, and has allowed this to follow suit on what happened recently with the Small-cap 600 index (SML) When looking at daily and weekly charts however, it's tough to just blindly buy this index's push back to new highs, as there lies the presence of daily, weekly and hourly, and 120 minute Sells on this breakout. Additionally, momentum has waned a bit as might be expected given its minor stalling out near prior January and March highs before the breakout. Overall a bullish move, but one to watch carefully as this might be prone to a false breakout as we near the latter half of May, so it pays to keep stops tight and not use this breakout as a chance to initiate new longs.
Energy continues to make upward progress, and OIH getting to within striking distance of January highs might lead one to think stalling out might be near. However, in this case, the group has exceeded downtrends from early 2017 that make this move appear to have a bit more longevity. While 29.50 is indeed an initial target, it's thought that this level likely is exceeded in the next couple weeks as this pushes even higher, with a likely max upside near $31.50. The acceleration and outperformance of late keeps this sector in the "overweight" column technically, and should still be favored for good relative strength.
The BofA Merrill Lynch Global Fund manager survey sheds some light as to current positioning, and it's interesting to take note that Banks are the largest "LONG" in the survey, with Cash, and Discretionary close behind. Given that Inflation expectations have begun to rise dramatically, along with the massive overweight in Banks, it's probably unlikely that the rise in rates continues too much longer (though for now, still seems to be ongoing and could reach 3.20-5%) Meanwhile, it's a good idea to keep tight stops on Utilities shorts as these are also a group that is underweighted pretty dramatically in this poll, while the interest rate sensitive REITS are actually considered "Overweights". Thus, fading the REITS is preferable to Utilities given sentiment, and we'll have to be on the lookout for signs that Healthcare is bottoming. For now, the downtrend in this group on daily and weekly charts and relative charts is very much intact.