December 14, 2016
S&P MARCH FUTURES (SPh7)
2245-6, 2240, 2220 Support
2272-5, 2286-8 Resistance
S&P Futures: (2-3 Days) Above average chance of at least minor stalling out post FOMC. Trend bullish but overdone and signs of counter-trend sells per Demark- Key will be to see prices make a meaningful reversal back to new multi-day lows which really hasn't been seen throughout December. Prices nearing initial targets, while NDX looks to be preferred vs the two for outperformance
SX5E- EuroSTOXX 50- Stallout likely in the short run, with 3258, the 50% retracement of the entire move down from Spring 2015, being important. On any sort of pullback in the next few days, however, pullbacks should be used to buy, as the index has grown structurally move positive given the recent ramp up in recent days.
HSCEI- Bullish- Monday's decline didn't change much structurally, and prices would require a move down under 9624 before thinking additional weakness might occur. For now, a move back to 10400 still looks possible
Longs/Shorts for a 3-5 day period:
Technical Longs: QQQ, GILD, HUM, AMGN, AAPL, MSFT, MRK, UNP, CONN, MTSI, EXP, ALGN
Technical Shorts: KSS, ANF, FOSL, NTES, TRIP, TUP
NASDAQ 100 finally joined the party, with NDX, QQQ clearing former highs which had kept the trend range-bound over the last couple months, allowing for outperformance in this and in Technology which has jumped over the last few days after nearly two months of lagging the broader market. (Weekly Technical Perspective , sent out Monday am-12/12/16, addressed this Tech outperformance ) While Semiconductor issues had already made new highs for 2016, sub-indices like the S&P 500 Software index closed at the highest levels since October at 1171.42 (S5SFTW in Bloomberg) while the S&P 500 Tech Hardware index did in fact make new highs for the year on Tuesday, (S5TECH) with strong outperformance by the Drive makers STX, WDC, along with JNPR, AAPL, MSI and TEL, all up more than 1%. This catch-up is constructive in these other groups which had shown recent underperformance and now are starting to show evidence of a more balanced, broad-based rally in Tech. However, at this time, the MSH/SPX ratio is STILL in a downtrend, so still important to be selective in what to own.
Heading into FOMC day, we see the spread between Treasuries and Bund yields widening back out again, while Treasuries have continued to weaken, albeit in a stair-stepping manner prior to FOMC, given the fact that Fed Fund Futures had factored in a 100% chance of a hike today. Today's post meeting press conference could allow for volatility as the Dot plot going forward with regards to speed of upcoming hikes as this will surely be on most investors minds given the recent uptick in economic activity. For Wednesday, there still remains precious little evidence of any real reversal in TNX just yet, and TY yields will need to undercut 2.33% to expect a pullback to 2.20%, and/or 2.00% which seems likely given the recent pessimistic Treasury sentiment per CFTC data, shown in yesterday's report. For now, yield curves flattened out quite dramatically on Tuesday given potential short covering on the long end, along with a better than expected Auction, and additional near-term flattening in the 10/30 and 5/30 curve looks likely in the days ahead.
Sector-wise, Healthcare and Technology remain the two sectors which look to be well positioned for further outperformance into year-end, while the Defensive groups like Utilities, Telecomm and REITS have all begun to strengthen given the signs of Yields beginning to stall out in recent days. For now, given the lack of meaningful pullback in Financials while Technology has started to join the rally, breadth has expanded, yet there remain legitimate issues with regards to the momentum in breadth, which has failed to show the same kind of strength as SPX prices of late, as most of the rally looks to have occurred in Financials, Industrials, and Energy and NOT in Tech, Healthcare, which remain two key pieces to the puzzle, sector-wise.
QQQ managed to successfully exceed former highs which had held for the last few months, suggesting additional strength in the weeks ahead, into year-end. While prices had gotten stretched in Small-caps (Russell) and SPX of late, along with Europe, NDX had failed to participate and join this rally until Tuesday, which looks to have resulted in a meaningful jump in Tech Hardware to join some of the recent strength in Semi stocks. Near-term, QQQ should be favored for additional strength into year-end, and any near-term pullbacks serving as buying opportunities.
10-Year Treasury yields ongoing Stair-stepping rally along with sentiment growing increasingly bearish bodes well for Bond bulls heading into year-end, as the last few occasions where CFTC Non-Commercial Specs assumed such a negative stance, yields dropped substantially in the 1-3 months that followed. Momentum has failed to follow the move in yields higher, and should present some kind of stabilization in Treasuries which allows for an above-average bounce. For now, yields have failed to show sufficient signs of dropping which might suggest that a larger yield pullback is underway.
Treasuries along with the Yield curve are important to focus on given today's FOMC meeting and when looking at the slope of the yield curve, we've seen a meaningful downturn in the last couple days, with 10s/30s curve falling to new multi-day lows. Some of this can be pinned on the Auction potentially which came in better than anticipated, while many might be covering shorts ahead of Wednesdays announcement. For now, this flattening out in 10/30 and 5/30 curve suggests that further yield curve compression is likely in the weeks ahead.
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