November 11, 2016
S&P DEC FUTURES (SPz6)
2113-5, 2097-8, 2081-3, 2028-30 Support
2168-70, 2181-2, 2196-7 Resistance
S&P Futures: (2-3 Days) Bullish- Despite the degree of near-term overbought conditions, it's tough calling for any sort of meaningful snapback in the short run. Prices look to be able to retest highest hit on Thursday near 2180, with August highs directly above. Dips to 2122 and/or 2106 are possible into next week, but for now, additional upside still looks necessary before any consolidation. 2147, Thursday's lows, are important in this regard for the next 1-2 trading days.
SX5E- EuroSTOXX 50- Neutral- Prices extended higher to near late Oct highs before failing into end of day. For now, one can make an equal case for a rally back to 3110 vs a pullback to 3000. The broader pattern remains unconvincing. Under 2039 could result in a larger selloff.
HSCEI-Neutral Rallies back helped HSCEI to hold the consolidation but for now, not much faith can be put in any sort of meaningful rally. Pullbacks down under Thursday's lows at 9328 argue for additional downside. While above 9873 would change the picture to more constructive.
Longs/Shorts for a 3-5 day period:
Technical Longs: CLX, KMB, ODFL, GNRC, PLNT, ADI, UNP, FDX, PYPL
Technical Shorts: GDX, ALV, UNG, VNQ, FOSL, PHM, ITB, TRIP
Near term upside could prove limited given the degree to which markets have lifted in recent days, though 2183-5 and 2196 both remain viable targets into mid-next week. From midnight Tuesday until mid day Thursday, S&P surged more than 8%, coming within 4 ticks of August highs . DJIA along with DJ Transports have both broken out, though Nasdaq has shown some evidence of not cooperating , with Tech proving much weaker than what might be expected
While breadth has been weaker than normal in the last couple days, with yesterday's Advance decline even showing more Down stocks than Up, the action in the financials and industrials has been quite impressive, and both broke out to multi month and year highs, exceeding the entire base in place for both throughout much of 2016
Meanwhile treasury yields have vaulted up higher in a manner that is quite bullish for further yield gains into end of year , though near term yield gains have made daily charts also very stretched, and yields will require consolidation. Both 10 and 30 year Treasury yields broke out above meaningful resistance this past week, which was behind much of the upward outperformance in FInancials.
The S&P's gains now have stalled out after the dramatic surge, but the resulting pullback thus far isn't all that meaningful, and one can make a good technical case for another stab at 2185, or even 2196 into early next week before any selloff. Thursday's weakness down to 2147 makes this area important if retested as support.
The recovery in Healthcare follows one of the larger droughts since it peaked in mid-2015. Recent weakness from August highs wasn't that apparent on absolute charts, but managed to fall to a key area of trendline support , stabilized and is now starting to bounce. XLV was down over 11% in 3 months, and the group was negative on a YTD basis the most of any sector until the last few days. The ability to snapback gels with how the relative chart in XLV/SPX looks above, as ratio charts bottomed near a key area that has held over the last year as a relative low vs SPX for buying pullbacks. Additional strength looks likely into new year and next given the degree of mean reversion that typically happens to Bottom feeding sectors starting in the next few weeks.
Developed markets made a substantial move to break out of the downtrend vs Emerging in the days ahead. The chart above highlights the MXEF vs the standard S5RLST and given the recent US Dollar strength while rates have moved up fairly sharply.
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