May 31, 2016
S&P JUNE FUTURES (SPM6)
2039-40, 2029-30, 2022-4, 2007-9 Support
2105-6, 2112-4, 2025-6 Resistance
1) S&P trend changed to bullish on last week's move above trendline resistance at 2065 which carried prices quickly up to test mid-April highs. However, upside now looks limited given overbought conditions combined with short-term cycles and former highs being technically important.
2) US Dollar index poised for its biggest monthly rise since September 2014 with returns through 5/30/16 of 3.6%. Precious metals have been hard hit in the last two weeks given this rally.
3) Emerging markets, conversely, have been hard hit in May, with MSCI Emerging mkts index falling nearly 4%, the most since January, while Brazil's Bovespa dropped nearly 9% on the month.
4) Treasury yields seem to be readying for an upside breakout, which could allow the long end to join the recent gains in 2 year yields. Given the Fed's determination at readying the market for a rate increase, the bond market seems to be paying attention on the front end, while 10 and 30-year yields, similar to stocks are up near key short-term resistance.
5) Technology, Financials and Healthcare dominated performance for May, with the SPX's 1.4% gains for the month with one day remaining being led by the three sectors that account for 50% of capitalization
6) Sentiment has begun to show some evidence of following the most recent rally, as Equity put/call data dove from readings shown earlier in the week. By end of week, the Equity Put/call had fallen to levels not seen since last August.
7) Breadth continues to be supportive of a move back to new high territory, while climbing back to April highs might allowfor a bit of resistance to take hold as the indices enter June. However, the beginning of the month tends to be far better seasonally speaking than back end-end of quarter, which often shows end-of-quarter positioning.
Short-term Thoughts (3-5 days) : Trend bullish but has reached former April highs which looks to be a logical place to pick a spot to fight this trend, for those who intend to do so. A stalling out is possible between 6/1-6/4 based on the combination of short-term cycles, former highs acting as resistance, along with overbought conditions in the near-term. However, this rally looks to move back to new high territory in the weeks ahead, so its smart not to get too aggressive in hedging, or trying to short into this move, as the pullback could prove minor before moving back to new high territory.
Intermediate-term Thoughts (2-3 months): Bullish- A move back to new high territory is expected before indices turn down to begin any larger correction. The uptick in bearish sentiment given that indices are within 3.7% of all-time highs looks to be an important factor arguing that further selloffs could prove muted for the time being. From a fundamental and macro standpoint, factors like ongoing revenue concerns, FOMC uncertainty, China & Emerging market growth, along with Election year angst have all served to fuel bearish sentiment steadily. Meanwhile technically, despite the short term churning, there remains precious little to be all that concerned about given the medium-term picture. The A/D-Advance/Decline for the NYSEhas recently moved back to new all-time high territory while weekly momentum remains bullish. The 5-day Put/call ratio meanwhile has hit the highest levels since mid-February while AAII polls show a greater number of Bears than Bulls for the second straight week. In addition, the total Put/call ratio has hit the highest level in over three months. Sector-wise, the start of Technology outperformance in the last week could be telling, as the NASDAQ has begun to act a bit better after a lackluster few months. While this six-month period remains seasonally weak and daily and monthly MACD are negative, gains should be able to hold indices up into late August before any pullback into the end of Q3.
Technical review and What to expect
The last week brought forth some fairly significant technical developments, as the S&P managed to breakout of the minor downtrend from mid-April and accelerate all the way up to test these levels by end of week. As of 5/30, the electronic session in Monday's holiday session saw S&P futures close within a point of all-time high territory, 2101 vs last May 21-2103, while still under the intra-day 2105 which was recorded both last May and this past April.(and still 1.4% below SPX cash peak closing prices just above 2130) While near-term momentum has gotten stretched on this recent 3% spike in prices in the last 10 days, the weekly structure suggests this was quite the bullish move, not only canceling out the thoughts of a possible Head and Shoulders pattern at play, but also improvingthe technical structure on an immediate move back up to levels that were hit around the middle part of April. The trend is bullish short-term, and closing in quickly on key overhead levels, which should be a source of resistance entering the month of June. However, if all-time highs are exceeded in the SPX, NASDAQ and DJIA, this should provide the impetus for a quick move to SPX 2250 into the summer, allowing price to join the recent breadth improvement and move back to all-time highs seen by the Advance/Decline for all securities.
For now, bonds haven't really shown signs of selling off too substantially on the long end just yet, which would be thought to be the case if the FOMC suspects the US economy is strong enough to hike in June or July. 2 Year yield attempted to breakout, while 10 and 30 remain more subdued, but do lie near key areas where breakouts might happen in the next couple weeks and have to be watched carefully here in this regard. Meanwhile the US Dollar index should be closing in on its first major area of resistance near 96, which might cause a temporary stalling out in the US Dollar and allow for short-term bounces in both the Euro and Gold.
Overall I suspect this week could provide a short-term stalling out in stocks, but am skeptical that equities show any sort of meaningful selloff other than a 2-3% drawdown at a maximum before moving back to new high territory. And despite any near-term slowdown, it remains right to be long in selective stocks within Technology, Financials and Healthcare, as these sectors provide about 50% of the total SPX composition and should outperform in the next couple months.
This week's Weekly Technical Perspective covers 10 stocks within the major 10 sectors that are all poised for potential further gains in the weeks ahead. Each of these has bullish technical structure and has recently moved to new 52-week highs, or is on the verge. Charts and comments below.
Charts & Writeups- 10 Bullish stocks to consider technically among 10 different S&P Sectors
Technology- Intuit (INTU-$107.89)- INTU looks technically attractive, and its ability to have rebounded back to test the highs of its ascending triangle formation from last May should result in an upcoming breakout to new high territory. Given the stock has moved in a linear uptrend since the latter part of 2008, this triangle formation since 2015 represents a change in structure. However, ascending triangle patterns of this sort tend to be bullish continuation patterns, and should lead to an upcoming breakout given historical precedent in how these patterns are typically resolved. Movement back up above $109 should lead straight to $120 and any pullback in the days and weeks ahead to near $105-$106.50 should constitute a technical buying opportunity.
Financials- PrivateBancorp (PVTB- $44.54) PVTB's strength in climbing back above $44 puts this stock in a strong technical position as it's setting up for an upcoming test of last year's highs near $45.79, made in November. However, the larger pattern remains quite constructive, and little resistance lies between current levels and the area near $50 which has hit initially back in 2008.
Energy - Concho Resources inc (CXO- $122.19) CXO's rally back above $110 serves as a breakout of the two-year downtrend in place for this stock, and allowed for acceleration up to over $120 in a short period of time. Given that Crude's rally is ongoing and to this point has shown little signs of peaking out, the Energy sector remains one to favor technically. CXO's outperformance this year speaks for itself after having risen 31+% this year through 5/27/16, but given this move back over the descending trendline, it looks to have further to go, technically speaking. Initial targets lie near last May's highs at $134, with movement over allowing for a move back up over $140.
Industrials - Acuity Brands (AYI- $256.21) AYI is bullish technically and the breakout into mid-April looks to have consolidated sufficiently and now could give way to a move back to new high territory in the weeks ahead. While the selloff into February of this year caused some minor trend damage, this was recuperated nearly right away and the larger trend for AYI remains in parabolic mode since early 2009 with an accelerating trend of higher highs and higher lows at an increasing rate. Key for short-term traders will be a move back over $259 which should drive this up to $280 which is an attractive area to sell for trading purposes. For intermediate-term investors, a move back down under $239 is necessary to think this rally might be postponed.
Healthcare - WebMD Health (WBMD- $65.32) The recent breakout of the enormous nine-year double bottom pattern has meaningful bullish intermediate-term implications for WBMD and should help the pattern continue to stretch higher, despite a near 75% gain in prices just since last September alone. Monthly RSI has hit 75, which might seem troublesome for the months ahead, but the move over two prior highs from 2011 and 2007 should help WBMD hit $70 before any stalling with a good likelihood of $80 potentially being reached as an intermediate-term technical target. In the short run, any pullback to the low $60s all the way down to $58 would be an excellent area to consider buying dips. But the intermediate-term progress in exceeding two prior highs made more than five years ago is considered a reason for optimism overall with WBMD.
Materials- Vulcan Materials (VMC-$118.12)- VMC remains in acceleration mode as it completes the right side of its giant "Rounding Bottom" pattern with upside targets at $128, or nearly 8% above. Given that this level held the initial time back in 2007, it should serve as a magnet for prices but also likely cause a real stalling out in the shares on the first retest. Overall, pullbacks to $110-$115 would likely constitute an attractive opportunity to buy dips with upside targets near these former highs in 2007. For now, VMC remains one of the more attractive within the space, and has shown very little signs of any weakness, with even its February 2016 pullback proving minimal and leading to move back to monthly highs within the next few weeks.
Telecom - Verizon (VZ- $50.62) VZ's pattern improved substantially given the rally back to test 2013 highs early this year. The subsequent pullback failed to do much technical damage and has now provided an opportunity to buy dips with key upside resistance near $55. Overall, this pattern in VZ between 1999 and 2013 resembles a giant base for this stock with subsequent three years representing a higher base which should give way to an eventual rally back to test 1999 highs. Verizon also has taken some positive steps of late relative to AT&T, and could be in the process of bottoming out in relative terms and starting to relatively outperform. Overall, given the amount of strength early this year followed by the recent consolidation, VZ remains attractive to own, with movement back over $55 leading to the real acceleration that will allow this to eventually retest $63.
Consumer Staples - Molson Coors Brewing (TAP-$100.20) TAP's move back to new monthly highs in exceeding former levels set back last November/December when equities peaked last year should set the stage for additional strength up to near $110 before any meaningful peak. The initial advance late last year managed to exceed nearly six months of sideways consolidation and TAP has continued to show very good signs of technical structure, with an ongoing pattern of higher highs and higher lows which makes this stock one of the better within its peer group to own.
Consumer Discretionary - Hasbro (HAS-$87.28) HAS looks attractive technically given the stock's ability to rise back over highs set this past Fall and now the recent stalling out is showing signs of being resolved by movement back to highs given last Friday's advance. Upside targets lie near $90 and then $100, which should be meaningful to HAS given its prior rise. Momentum-wise, the stock's pullback last Fall helped to alleviate some overbought conditions, and its recent move back to new highs looks to have been consolidated in good fashion which should allow for rallies back above $90. Overall, HAS is attractive, and long positions are warranted at current levels, looking to buy dips.
Utilities - P G $ E (PCG- $59.12) PCG is attractive within the Utilities space given that the stock has not yet moved back to new highs, and rests near former highs from last Spring, which provided resistance on the initial test earller this year. Getting back above $60 looks likely in the weeks ahead and should provide a springboard for PCG to rise to at least $70 on an intermediate-term basis. Giventhat stock completely retraced the weakness into last Fall, a move back up above $60 on a weekly basis should result in real upside acceleration.
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