March 23, 2016
S&P JUNE FUTURES (SPh6)
2027-9, 2023-5, 1995-6, 1968-70 Support
2045-7, 2055-6, 2060-2, 2075-7 Resistance
1. S&P uptrend remains intact, and the stalling out over the last couple days really hasn't given way to any weakness, and doesn't suggest that momentum is waning in a manner that should lead to definite pullbacks in price. The resilience in recouping losses likely still leads higher in the short run, with upside targets near 2060-2, while any close under 2027 at this point, near Tuesday's lows, being necessary to lead to weakness.
2. Healthcare has shown evidence of meaningful recovery in recent days after underperforming sufficiently to put this sector at the "bottom of the barrel" over the last 1, 3 and 6 month periods, while dragging down its formerly stellar one-year performance to middle of the pack given recent woes. The last three days of strength have helped XLV gain nearly 2.9%, the highest since the initial surge of the lows in mid-February. Relative charts of XLV to the VTI, the Vanguard World index ETF, have successfully regained former lows breached last Fall, and should provide further near-term strength in this group. Given that Healthcare lags all other major sectors in one-month performance, and is 300 bps behind the next to last "laggard" being Utilities, this recent surge should help this sector play "catch-up" and demonstrate near-term relative strength vs. the others, and is constructive for the major index given its heavy composition in SPX.
3. Treasury yields are leading Bund yields right now to the upside, and while daily momentum remains negative (MACD), structurally Yields still look to trend higher, with movement over 2.00% possible up to 2.05-2.10%. A similar move for German 10-yr Bund yields would help carry these to near 0.40%. For now, stops on both lie at 1.85% and 18.3 bps.
4. The rise in the US Dollar index has come on the heels of both GBP/USD weakness on Brexit fears and a settling of the former Flight to safety into the Japanese Yen, but is thought to be temporary, despite a 4-5 day recovery, as momentum remains quite negative for the US Dollar index along with technical structure. This minor rally has caused some backing off in the Precious Metals in recent days that should be a buying opportunity. WTI Crude oil meanwhile, remains near-term bullish, but overbought, with evidence of minor negative divergence but little signs of any real weakness. The API inventory build last night of 8.8 million barrels vs 2.7 million expected is having very little negative effect thus far on price.
5. Europe looks to have recovered and followed through on yesterday's late strength, after the Belgian terror plot failed to wreak much havoc with indices, and the DAX particularly has led the way back higher, with today exceeding former highs of the past few days, recapturing more than 50% of the prior High to Low range from last November.
BOTTOM LINE- Still very little signs of weakness, and while many have come out of the woodwork in the last few days to attempt to "top-tick" this rally, we haven't seen sufficient deterioration to warn of any pullback. Globally, yields have begun to stabilize and turn higher, and the rallies in US, European, and Asian indices seem to be ongoing, with just minor stallouts in recent days, though nothing too damaging. The various "talking Head Fed Governors all seem to be contradicting the Dovish message sent at the recent Fed meeting, and many including Harker, Williams, and Lockhart, have all spoken out in favor of possible hikes in April, with investors listening closely to what Bullard has to say today. Nonetheless, this inconsistency certainly helps to create an aura of indecision surrounding the FOMC, and helps the "Wall of Worry" to persist. The rally in the US Dollar meanwhile has helped commodities to settle a bit in recent days, which should present a buying opportunity for the Metals, and Metals stocks after a bit of consolidation. WTI Crude meanwhile, has shown little to any signs of reversing course, similar to the SPX, but should be watched carefully given the correlation along with the recent bearish Inventory stats. Bottom line, heading into the final 12 hours of trading in this holiday shortened week, there's very little that suggests the indices "shouldn't" end the week on a high note, based on ongoing resiliency. Technically it remains right to bet on higher prices unless proven otherwise.
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