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Financials & Small-cap Strength continue to drive equities higher globally, despite breadth concerns

December 7, 2016


2202-3, 2179, 2164-6          Support
2213-4, 2220, 2230-1          Resistance



S&P Futures: (2-3 Days)  Bullish, despite S&P's pushing up to within striking distance of highs, a move over is expected.  Upside to 2235-2240 possible into year end, and 2179 remains a stop for longs.

SX5E- EuroSTOXX 50-  Bullish-  Europe has taken the lead thanks to European Banks in the last few days, and SXXP and SX5E are arguably breaking out which should lead to upcoming outperformance vs SPX.  Long with a test and potential breakout above 3150 likely into year-end and under 3047 needed to cancel out a near-term bullish view. 

HSCEI-     Bullish- Pullback held where it needed to before Tuesday's bounce- Movement back higher to 10k initially and over leading to 10400.

Longs/Shorts for a 3-5 day period:

Technical Shorts: UUP, TWTR, D, CMS, DTE, TRIP, TUP


The push back higher to test recent all-time highs in S&P continues to be dominated by Financials, in a sharp move which has resulted in breakouts in SXXP as European Bank ETF's have demonstrated above-average upside strength of late.   European, Asian and US indices have begun to move higher, and while breadth might not be ideal, we are still witnessing good structural strength in the indices.  NASDAQ 100 remains the laggard in this regard and there continues to be no convincing signs that Technology has begun any sort of sharp advance back to new highs what would indicate any type of leadership potential, but fornow, the rally should be respected given the seasonality and the structural progress, which puts the breadth concerns and uber-optimism on the back burner during December.

The breadth has been an issue of late and has to be mentioned that in the last two weeks we've seen the Percentage of Stocks trading above their 10-day moving average drop down to 50% from over 80% which was reached two weeks ago.  The Percentage above their 50-day m.a. for SPX is 63%, a far cry from the 85% + which was hit back in March, or in July, and is a definite concern for 2017, regardless of the near-term bullish price structure.  McClellan's Summation index also stands at a fraction of levels which were hit a few months ago, and as a smoothed version of the McClellan Oscillator measuring Advance/Decline data, is an additional pressing concern.  Those issues mentioned a couple weeks ago regarding Financials and Industrials being two of the only sectors showing strength has not really changed all that dramatically.  Technology remains a laggard and has its work cut out for it, to show some necessary outperformance to lend some credibility to this move.

At present, Global bond yields have been pressing higher across the globe, with breakouts evident in the German 20-year Bund yields and near- Breakout for the 10-year.  Our own US Treasury Yields have risen parabolically, yet have given precious little signs of any rollover, despite some evidence of upside exhaustion.  This remains paramount to keep under the radar in the days and weeks ahead.  While this might seem unlikely ahead of the FOMC meeting on 12/14, any downturn in yields would cause underperformance in Financials at a time when the market can ill-afford any such lagging tendencies.   Some charts to illustrate some of this price action are shown below.


Russell 2k continues to gain ground, as its minor pullback attempt lasted only around four days before pushing back to new highs on an absolute and relative basis.  This chart of RTY vs SPX shows the upward parabolic move in the Russell 2k since early November which has now gained over 16% from trough to peak measured from the 11/3/16 lows.  No signs of any weekly exhaustion is present, which indicates that any pullback attempt in the near-term should prove short-lived and buyable.  For now, upside targets lie near $140.



The Citigroup economic Surprise index of the G-10 shows economic data beating expectations at a very sharp clip these days, having just exceeded former Summer 2016 highs to reach the highest levels since early 2014.   So the data hasn't been just US related in terms of Economic growth, but we've seen data turning up globally in a manner that has beaten expectations.



SXXP, the STOXX 600 index, has risen to the highest closing levels since October based on Tuesday 12/6's close.  This is near levels hit Monday on an intra-day basis and also in mid-November, but is clearly a positive development that reflects the European Bank progress, more than any "Anti-Renzi" sentiment that is driving this rally following last weekend's "NO" vote on the referendum.  EUFN, the Ishares MSCI Europe Financials ETF, has broken out and accounts for quite a bit of this recent push higher, not dissimilar from what's happening in the US right now.  In the short run, ETF's like EZU, which tracks the European Union shares, has turned positive in relative terms to the US and should be overweighted relatively speaking for near-term outperformance.   EUFN has become stretched, but any consolidation here is also likely an attractive opportunity to buy/overweight this for further upside progress.



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