April 16, 2018
S&P JUN FUTURES (SPM8)
2584-5, 2549-53, 2524-5, 2474-6 Support
2697, 2739-40, 2753-5, 2781-2 Resistance
Markets remain resilient as Air-strikes, geopolitical unrest have failed to damage trends
Foreword: Markets continue to show signs of resilience in the fact of real uncertainty, with tariff concerns, trade policy unrest, POTUS investigation and Geopolitical worries having little to no effect on the trend in recent weeks. The pattern remains quite symmetrical and much more technically sane than the news would have investors believe should be the case. While the consolidation since late January and mid-March remains intact and has not shown any evidence of giving way, markets have attempted to bottom out and try to head higher in the last couple weeks. This bounce as of Sunday evening 4/15 still looks to be in play with futures having rallied around 0.50% in late night trading given what appears to be a quick coordinated strike, thus far. Additional gains look likely over 2700 for Futures in the days ahead, and it looks right to stay long tactically until price shows sufficient signs of rolling over again (which could happen as markets enter the month of May) Unfortunately this pattern simply doesn't inspire much confidence of anything more than just a bounce at the time, and weekly momentum remains negatively sloped which makes this trend tricky in the near-term. Look for Technology to turn higher this week, while the bounce in Yields could put pressure on Utilities and REITS.
An odd week to say the least. Bullish price-wise, but with breadth not really showing all that much conviction that a meaningful bounce was underway. SPX managed to achieve the best weekly performance in over five weeks, yet prices fell during every final hour of every day last week (Bespoke) ( As of Sunday evening there's been little to no effect on stock futures despite an unanticipated coordinated missile attack on Syria) From a sentiment perspective, markets seem to be "knee-deep" yet again in disturbing global news which has served to turn attitudes towards stocks a bit more skeptical. From Trade policy rhetoric, to the FBI investigation of Trump's lawyer, to the uptick in geopolitical fears, there's no shortage of news these days to make investors a bit uncomfortable with the idea of owning stocks. However, its a MUST to separate out the noise from the price action, as charts still show very well defined patterns and its imperative to obey these formations vs allowing news to shake us out of existing positions. Overall, the pattern in stocks seems to have improved in the short run over the last couple weeks, while bond yields look to be turning back higher again (even if short-lived) and this former negative correlation between stocks and bonds seems to have returned. Commodities meanwhile have begun to turn higher, while the Dollar has largely been even more range-bound in the last two months than either stocks, or bonds. One thing that's remained in place is the ongoing level of heightened volatility which has caused many to begin "overtrading" in order to balance risk and avoid excessive drawdowns, with stocks certainly going in all different directions these days.
Overall, it's right to enter April expiration week on a positive note given the following factors:
1) Bullish short-term momentum (MACD crossing to positive on daily charts)
2) Inability of Equity indices to pierce intermediate-term trendline support (As of yet)
3) Signs of Technology turning back higher, relative speaking to SPX after having held exactly where this group needed to at longer-term trendline support
4) Former positive momentum divergence at April lows
5) Elevated concern/start of pessimism creeping into the market
6) Bullish seasonality the last half of April, starting on Day 10 of the month(StockTradersAlmanac)
What's still a concern in thinking indices can make major headway higher on any bounce:
1) Weekly momentum still negatively sloped given the extent of the drawdown from late January
2) Pattern from January highs and mid-March highs still negative, making rallies something to consider selling into
3) Breadth has been lackluster on bounce attempts in the last couple weeks, despite the positive price action on this move
4) The majority of world indices remain well off their 52-week highs (7-10%) while on average most stocks are down 15% from their highs
5) Equal-weighted SPX continues to fall vs the Cap-weighted SPX and Small-caps, and Mid-cap indices have a decidedly negative bias in recent months
What else has been going on of interest outside of Equities that could be impactful this coming week?
1) The Dollar's range-bound action technically is thought to have a final pullback lower into May, though that might be a buying opportunity. Hedge fund short exposure to the USD is the highest since 2013. Near-term, its weekly loss under prior weekly lows looks mildly negative, but EURUSD needs to show more strength to argue for extreme Dollar weakness and the pattern in USD/JPY has improved in the short run. This will need to change to cause a big dollar decline, but for now, that still seems more likely in the next 4-6 weeks than a major advance
2) Treasury yields achieved a minor breakout in US 10-yr Treasuries, in getting over 2.81%, which tilts the odds for short-term bond weakness (yield strength) up to 2.90-3% in the days/week ahead. Stocks and bonds have begun to exhibit their former negative correlation again where yields and stocks seem to be moving in tandem
3) Commodities have begun to show real strength as per the recent grain bounce, the Energy breakout with crude at the highest level since 2014 while Precious metals are "on deck" for their own breakout. It should pay to overweight commodities in the next 4-6 weeks as Gold wrestles with a larger breakout above 1365 while Crude oil could rally into the low $70s into mid-May before a peakout.
4) Bitcoin looks to have broken out after a lengthy period of disinterest and/or negative sentiment in the last month, and Ethereum is moving up at an even quicker pace in the short run. Other Cryptocurrencies have begun to stabilize and might be something to watch carefully in the weeks/months ahead given that there remains a real sense of apathy and skepticism now compared to mid-December 2017, while investors have been given a fairly major pullback.
SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:
Short-term (3-5 days): Bullish- When news of tariff woes and geopolitical unrest can't take markets down, one knows that the trend has become increasingly more resilient in the near-term. The coordinated Syria attack this past weekend was shrugged off by Equity markets late Sunday night, and last week's progress looks to continue into this week, as April expiration week remains seasonally speaking the most bullish week of the month. Time targets near 4/28-29 stand a serious chance of derailing this rally, and while minor time counts near 4/17-9 do look to have some importance, it remains right to stick with this bounce tactically for a move higher to 2730-50 before considering fading this move and taking profits on the rally. This remains a short-term rally as part of the larger consolidation decline from mid-March and late January, yet still seems early to abandon this bounce given favorable momentum and breadth developments, while Technology has begun to show increasingly more signs of trying to bottom out in the short-run. Movement under 2616 would cause longs to be abandoned, thinking a downturn should take prices back to recent lows. Yet for now until this happens, it's right to be bullish, expecting a bit more gains this week, while keeping vigilant as to the possibility of trend failure sometime in mid-to-late April.
Intermediate-term (3-5 months)- BULLISH into late April/mid-May- The selloff which began in mid-March looks to found at least temporary stabilization and now embarking on its first real counter-trend rally which looks to have more upside in the short run. Sentiment has turned more pessimistic in the last few weeks (AAII shows more Bears than Bulls, CNN Bulls/Bears Poll now shows extreme fear) While it can't be ruled out that markets peak into end of April and attempt to turn back down into May to retest lows, even on a minor breakdown at this point, this will cause positive divergence, allowing for dips to be bought with a bit more conviction. Intermediate-term trends remain very much intact and suffered very little overall damage on recent pullback attempts which would alter the bullish view, despite a big drop in momentum (which eventually will prove problematic) So the combination of heightened fear with counter-trend Demark buys at lows from early April, while prices have tested key troughs from February and weekly uptrends remain intact suggests that this first leg down very well could be complete. Given the lackluster breadth during this first few weeks of rally, a sharp thrust in breadth and momentum will be needed into end of April to give more confidence that lows won't be retested, and failure to do that could allow for yet another retest. For now, the uptrends being intact along with heightened concern despite market resilience argue for a positive stance.
5 Attractive technical longs, 5 attractive technical shorts
LONGS: SPLK, WYNN, GMED, WIX, WING
SHORTS: TSCO, EXPE, LUV, SIG, BBBY
Splunk (SPLK- $104.15) SPLK is attractive technically and still likely that this can lift to test and exceed recent highs at $112.66 on its way to $120. Momentum has begun to turn higher again via MACD on daily charts, while the pullback from March never managed to cause much deterioration in the larger structure. Counter-trend signs of exhaustion on both daily and weekly charts are premature to form, and March's pullback should give a chance to buy at levels more than $10 lower than it peaked last month. Any early week pullback down to $100-103 would offer the chance to buy at an even better risk/reward opportunity, and only a move down under $94 would threaten the larger trend. For now, this attractive chart has improved given the stock's ability to have rallied up sharply off the lows last week, and should set up for further gains.
Wynn Resorts Ltd (WYNN- $183.81) WYNN looks to be putting its problems behind it as the late January plunge has given way to an attractive technical base over the last few months. WYNN looked to have successfully gotten above the key area of concern on the upside near 187 and should set up for further gains in the weeks ahead up to $215 up to $225 before any serious stalling out. The pattern resembles a bullish triangle with high volume gap acceleration higher in March resembling an Island type reversal higher on heavy volume. the resulting month of consolidation has allowed for attractive buying opportunities technically while last Thursday seemed to be signaling that a return back higher is likely. Movement over last Thursday's $188 highs on a closing basis argue for adding to longs, and leading to a retest of highs made during late January at $203.63. Declines back under $173, while not expected right away, are necessary to change this structure and postpone the rally.
Global Medical (GMED- $50.66) GMED's stalling out following the run-up from last Fall should provide the optimal entry for this stock to continue higher on its next leg up, and Last week's success in exceeding prior highs likely has jumpstarted the beginning of this upcoming rally. Counter-trend weekly exhaustion signals are premature to show "Sells" using Demark techniques by at least 3-4 weeks, which bodes well for additional upside to test and surpass March highs at $52.18 on its way to $55. Pullbacks early in the week to $48.50-$50 would allow for even better entry and only a move down under $47.87 postpone this rally. At present, another 7-10% upside looks possible Technically as part of this ongoing uptrend, making GMED a technically sound candidate to consider.
Wix.com Ltd (WIX- $84.50) This Israeli Web-based platform operator has been quite bullish for the last couple years after making highs above $86, retracing an exact 50% of this former run-up before rallying up this year to challenge this high yet again. The act of consolidating over the last four weeks before lifting up last week to make a new three-week high is convincing to thinking this move back to new all-time highs is underway. Last week's $84.50 close represents a new all-time high weekly close, and should allow this to accelerate up to targets at $90 into May before any real stalling out. Overall, WIX remains one of the more attractive stocks in its space given this retest and push higher, and longs are recommended, looking to use any minor weakness to buy dips.
Wingstop Inc (WING- $48.20) - WING is quite bullish here technically after having formed an attractive bullish base from January which showed very little backing off during the entire pullback into early February. The stock doubled from last March and its consolidation over the last 2.5 months is seen as very constructive to this intermediate-term pattern in allowing the stock to alleviate its overbought conditions before moving up further. Last week's close successfully finished higher than any one of the prior three weeks, which should set the stage for an upcoming breakout that carries WING up to the mid-$50's with intermediate-term targets near $60. Overall, this remains very favorable technically and largely under the radar, but setups like these often present attractive opportunities to position ahead of the breakout. Any daily close over $49 would warrant adding to longs, suggesting this rally is underway.
Tractor Supply (TSCO- $58.32) Ongoing deterioration and underperformance make TSCO one to avoid and/or consider shorting, technically speaking, with downside targets found initially near October 2017 lows at $54.76 with further targets at Summer 2017 troughs found just under $50. This stock's January break managed to violate the steep uptrend from last October which had seen nearly a 50% parabolic rally to peaks over $80 before reversing and crashing back down to earth on heavy volume. Last week's break of March lows suggests this stock remains a timely technical short and no immediate support lies in the high $50's for TSCO in all likelihood. Until/unless TSCO can rise back over $62.25, further declines are likely in the weeks/months ahead, and it's right to hold off on buying dips, and/or avoid for now, as this ongoing correction continues. Intermediate-term weakness which violated 2017 lows would make TSCO vulnerable to a larger decline down to $41.53. At present, that doesn't seem to be imminent, though can certainly not be ruled out given this stock's deteriorating structure.
Expedia (EXPE- $107.20) The stocks has experienced two high volume "Gap-downs" since peaking out in mid-2017 and its rally attempt from this past February lows is quite unconvincing with minimal progress since this bottomed out just shy of $100. The stock broke a five-year uptrend line from 2013 lows early this year and momentum has been negatively sloped on weekly and monthly timeframes given recent deterioration. While the churning since mid-March might be seen by many as encouraging towards signs of a bottom, the stock remains a relative laggard, and looks likely technically speaking to pulling back and testing (and in all likelihood) breaking early February lows in the months ahead. Weekly closes down under $104 would be a chance to add to shorts, and any break of February lows at $98 should lead to at least another 10% lower, with initial downside targets near the 50% retracement level of its 2009-2017 rally which intersects near $83.79. Overall, this looks like one to avoid and/or consider shorting, with minimal evidence of any real bottom at hand, technically.
Southwest Airlines (LUV- $55.07) Increasing signs of weakness out of LUV this year with this stock violating a trend which had held lows going back since Summer of 2017. LUV has now taken over the dubious honor of being the worst performing stock within the 20 members of the DJ Transportation Avg. this year, with returns of -15.86% compared to TRAN -2.29% in data through 4/13/18. Airlines overall have shown evidence of weakening relatively in the last month, with XAL breaking relative trends vs SPX going back since the '08/09 lows, and LUV's structure looks negative given the ongoing failure of this to mount any kind of rally after deep retracements lower in the last six months. Given the stock's rolling pattern since last year, it has increasingly started to show evidence of peaking out as part of its longer-term uptrend which began five years ago. Pullbacks down to test this uptrend line at $47-$50 look possible over the next six months, and momentum remains negatively sloped per MACD on weekly charts. Initial pullbacks to $47 would likely constitute an area to cover shorts, while any larger break of $47 would have intermediate-term bearish consequences in all likelihood for LUV.
Signet Jewelers Ltd. (SIG- $38.63) The 16% rally seen in SIG since early April two weeks ago should present an excellent area to consider fading the stock technically given its sharp downward momentum and lack of progress in sufficient rallies to suggest lows have been put in. The stock remains in a steep downtrend from last November's highs, and momentum is very sharply downward biased on weekly and monthly charts, while the daily rally has helped to bring this up to levels which now can hold as resistance. Given the lack of daily and/or monthly Counter-trend buys present, there seem to be precious little evidence to think this stock has bottomed out on anything more than just a near-term basis. Therefore this minor counter-trend rally should present opportunities to short the stock technically with ideal areas found at $40-$41 near late March highs. Movement back down to test lows appears likely in the weeks ahead, and SIG would require a weekly close back up over $43.85 to change this perspective to more constructive, technically.
Bed, Bath, & Beyond (BBBY- $17.28) Last week's decline brought BBBY to within striking distance of 2008 lows, breaking the entire consolidation phase from last November. This keeps the intermediate-term trend from 2015 highs bearish, and suggests it's still premature to buy dips, despite this being down over 75% off its all-time highs. Last week's pullback will certainly begin to create some positive momentum divergence on this drawdown but MACD is curling back to negative territory on weekly charts and structurally the pattern remains quite negative with what appears to be a new leg down. Volume expanded on last week's decline, while no counter-trend evidence of Demark related exhaustion is present to suggest buying dips. Overall, while BBBY could hold $16.23 over the next couple months, that remains down more than 5% under current levels, and should be reachable before even minor stabilization. Violations of $16.23 would argue for a prolonged bearish move to continue, and offer a far dimmer forecast for the stock.