April 20, 2016
S&P JUNE FUTURES (SPm6)
2084-5, 2060-3, 2047-9, 2020-2021Support
2100, 2105-6, 2123-5, 2135 Resistance
S&P Futures: Short 2094 SPM6- Target 2048, Stop 2106 - Increasing signs of limited upside in the short run- Broader trend still very much bullish, but near-term, aggressive traders can short S&P Futures with stops at 2106, adding under 2084 for possible one week decline down to 2048 before stabilizing, and moving to new highs
EuroSTOXX 50- Near-term resistance at March highs at 2920 looks possible, and apullback down to 2800 could occur before additional strength over the next couple months up to over 3050.
Hang Seng China Enteprise index- Upside likely contained near-term at 9500-9550. Under 9000 on a close likely leads down to 8750. Until 8750 is violated, the trend from mid-February remains bullish and pullbacks would be used to buy.
Attractive Technical Risk/reward Longs
PAY, GRMN, RIO, VALE, ESV, SGMS, SLM, PRAA, GILD, ETFC, NXPI, TXN, ADI, JOY, FIT, WB, FXI, VNTV, MRO, WMB, HES, APA, NAVI, SWN, LGND, MDT, KMB, SBUX, SAFM, BCR, BSX, DVN, ELLI, MSFT, NKE
Bullish, but extended- Buy Pullbacks- X, MBT, AEM, NEM, FCX, GDX, GG, TRXC, EBF, DG, CHD, OC, PM, MCD, AVGO, SONC, POOL
Attractive Technical Risk/reward Shorts: TSLA, WDAY, CIEN, QLIK, T (36.75 tgt), RT, LC, SQ, DF, TSN (low 60s) ADS, KO (44.5 Tgt) GPS, BBBY, FL, MNK, P, RL, CROX, CF, FOSL, JWN, HOG, HTZ
While I remain bullish on the indices for an eventual move back to new highs into late Spring/early Summer, there are a few troublesome factors that have crept up that bear watching carefully in the days ahead which could lead to at least a temporary trend reversal. Aggressive traders can look to hedge existing longs, or consider shorts on indices and index ETFs with stopsdirectly over November 2015 highs. The reasoning is as follows:
1) SPX has moved higher by 4% since April 8, with current prices pushing up against resistance on short-term trend channels for the SPX.
2) Momentum and breadth have faltered over the last month on daily charts, as the recent push higher into early April was not matched by a similar move in New highs and momentum.
3) Equities have grown overbought on an hourly basis, and when scouring index charts on one-hour and four-hour timeframes, we've begun to show signs of diverging on hourly charts to match the minor divergence on daily basis.
4) The NASDAQ has begun to underperform in recent days, with leading sectors like Technology showing real underperformance in the last few weeks, with Tech being the 3rd worst performer of the major SPX indices in the rolling one-month period. INTC lowered 2Q revenues after hours, and the stock was down nearly 3% after hours, with the SOX already hovering near key support (660)
5) Indices have moved up to test the November/December highs in the SPX, DJIA and NDX, a logical area of resistance which could result in a near-term stalling out after a 13% gain from mid-February.
6) Sector ETFs of Industrials, Energy, and Consumer Discretionary have reached important levels (XLY from late 2015) ( XLI early Spring 2015) and (XLE-Key 2 year trend from 2014), which could limit the upside in these groups while Financials has also gotten stretched, being up 6% just since early April.
7) Key timeframes extending from January lows as well as prior July highs both project to this week as having possible importance for a change in trend. These are based on 90 and 270 day cycles (Gann) from prior prominent turns in the indices, both of which project to a possible turn this week.
8) Finally, this period in mid-April is notoriously a poor time for stocks most Election years, and charts of seasonal performance in Equities tends to show the period from mid-April into early June as being one of the worst periods in an Election year.
Overall, the combination of these suggests that the upside could prove limited in the short run, and given that recent prices have stretched higher to short-term resistance while momentum has failed to keep up could limit the acceleration and allow for some consolidation to take place. Longs should be placed in the Materials sector which is benefiting with the US Dollar having started to turn down again, and look to buy into any corrections in the next couple weeks, or look to follow S&P futures above 2106 which likely would postpone the pullback until last May's highs are tested. Charts and comments below.
S&P futures have grazed 2100, moving up sharply but are now overbought while momentum is lower. Look for prices to back off in the short run before this rally can continue. Shorts would be stopped out over 2106 and under 2084 would argue for adding to shorts for a move down to 2048.
S&P has also grown overbought on hourly timeframes while reaching the highs of this trend channel. While the bullishness of this trend can't be challenged, we could easily pullback in the short run while preserving the positive nature of the larger trend.
US Dollar's downturn in recent days looks to extend down to prior lows and could help the commodity rally and Materials to extend further. Some of this is the EUR/USD starting to firm ahead of this week's ECB meeting, but following the pullback in recent weeks, the EURUSD looks like an attractive risk/reward to rally along with favoring ongoing rallies in the Precious Metals.
Philadelphia Semiconductor index (SOX) has started to falter in recent days, something which needs to be watched carefully given its leading tendencies. Key support lies near 660 which if broken in Wednesday's trading, would lead to a quick move to 645-50 before this can turn back higher. Intel's 3% drop after hours Tuesday could serve as the catalyst for such a move to unfold Wednesday.
Election year tendencies typically show the period from mid-April into early June as being very much Sub-par, so the combination of our short-term bearish hypothesis could allow for this to begin sometime this week. While technicals suggest that the US Market should move back to new high territory before a larger top unfolds, in the short run, indices could easily give back 3-5%.
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